Real-estate bubble risks are dwindling across the world with higher interest rates taking froth out the market, UBS says

• Higher interest rates have deflated real-estate bubbles across the world, according to UBS.
• Central banks have aggressively hiked borrowing costs over the past 18 months to combat inflation.

One benefit of global central banks' aggressive interest-rate hikes over the past 18 months? Fewer housing-market bubbles, according to UBS.

The Swiss bank released its annual Global Real Estate Bubble Index last week – and found that home prices are only severely overvalued in just two of the world's top 25 financial centers, Zurich and Tokyo, down from nine citites a year ago.

"The global surge in inflation and interest rates over the past two years has led to a sharp decline in imbalances in the housing markets of global financial centers on average," a team of strategists led by Matthias Holzhey said.

"House price growth has suffered due to rising financing costs as average mortgage rates have roughly tripled since 2021 in most markets," they added.

"On average the cities lost most of the real price gains made during the pandemic and are now close to mid-2020 levels again."

Central banks across the world have lifted borrowing costs over the past year-and-a-half in a bid to tame inflation, which has had the knock-on effect of pushing up mortgage rates.

In the US, the Federal Reserve has tightened by 525 basis points since March 2022, with the average 30-year fixed rate mortgage spiking from 4% to 7% over that timespan, according to data from the St Louis Fed.

All those hikes mean that the New York, Boston, and San Francisco housing markets are now fairly valued, while Los Angeles remains slightly overvalued, per UBS. The US was also the only country analyzed by the bank that didn't experience a sharp rise in rent prices over the past year.