"It takes into account five categories to produce an overall score: home prices to income ratios; rental prices compared to home prices; local incomes versus national incomes; a city's median home prices relative to the median of the overall country; mortgage rates; and construction rates."
"Cities that end up with an overall score above 1.5 are at "high" risk of being in a bubble, while those with a score of 1 to 1.49 are at "elevated" risk. Markets with a 0.5 to 1 are at "moderate" risk, and 0 to .049 are at "low" risk, according to the bank. Miami has again come in on top with a score of 1.73."
""Cities with elevated or high bubble risk continued to decouple from fundamentals: over the last five years, inflation-adjusted home prices increased nearly 25% on average, while rents rose about 10% and incomes about 5%," Claudio Saputelli and Matthias Holzhey said in the report. "By contrast, prices in cities with moderate or low risk fell roughly 5%, while rents and incomes were broadly flat," they continued. "Historically, worsening affordability and widening gaps between prices and rents have served as forerunners of housing crises.""
Miami ranks highest on a global real-estate bubble index with a 1.73 score, placing it in the high-risk category. The index measures home-price-to-income ratios, rental prices versus home prices, local versus national incomes, city median home price relative to country median, mortgage rates, and construction activity. Scores above 1.5 indicate high risk, 1–1.49 elevated risk, 0.5–1 moderate risk, and below 0.5 low risk. Cities in elevated or high risk have shown inflation-adjusted home-price growth near 25% over five years, while rents rose about 10% and incomes about 5%, widening affordability gaps that can precede housing crises. Four U.S. markets appear among 21 global cities, with Miami leading.
Read at Business Insider
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