Markets & Economy

San Francisco is the most ‘overvalued’ market in the U.S., study finds

Home prices in the City by the Bay have outpaced the nation by 260 percentage points

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According to the UBS Global Real Estate Bubble Index released last month, which includes 20 of the globe’s largest cities, San Francisco is the most overvalued market in the U.S. thanks to home prices that have outpaced the rest of the country by 260 percentage points over the last 40 years.

The report also notes that despite a slowing of home price growth in San Francisco, it isn’t enough to improve affordability issues in the area, as income growth has failed to meet the cost of living.

San Francisco's market is the most overvalued in the U.S., but is not technically a bubble, according to UBS.

Since 2011, real house prices of those metropolises within the bubble-risk zone have increased by almost 50 percent on average, according to the report, and prices have risen by approximately 15 percent in the other financial centers studied. “This gap is grossly out of proportion to the differences in local economic growth and inflation rates,” read the report.

Los Angeles (1.13) was also overvalued, but Boston (0.45) and New York City (0.20) are fair-valued. Chicago is the only U.S. city to be undervalued (-0.56).

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About the index

The Swiss financial services company composed this index to track the risk of housing bubbles in international financial centers.

The index score is a weighted average of the following five standardized city sub-indices: price-to-income and price-to-rent (fundamental valuation), change in mortgage-to-GDP ratio and change in construction-to-GDP ratio (economic distortion) and relative price-city-to-country indicator.

Email Marian McPherson.