UBS: These 6 housing markets around the world are closest to a bubble

Vancouver's housing market is more likely to be in a bubble than any other major city in the world, according to UBS Wealth Management.

The bank's economists published their 2016 Real Estate Bubble Index for select cities on Monday.

The UBS economists say that Vancouver is in a bubble because the rise in that city's house prices has been substantial, and the current levels are well above what homes are really worth.

"House prices of the cities within the bubble risk zone have increased by almost 50% on average since 2011," wrote Matthias Holzhey and his team.

In addition to Vancouver, UBS included five other cities in the bubble zone: London, Stockholm, Sydney, Munich, and Hong Kong. Outside of those six bubble zone cities, prices have risen by less than 15%.

The three main drivers for the rise in prices were a flood of foreign capital, loose monetary policy, and bullish expectations, UBS said.

"A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a rapid decline in house prices," Holzhey wrote. "Investors in overvalued markets should not expect real price appreciation in the medium to long run."

However, there's no need for the kind of concern about a housing crash that was seen in the US a decade ago, according to Jon Woloshin, a strategist at UBS Wealth Management Americas.

For one, a recent 15% property tax that Vancouver's provincial government imposed to stem the rise in prices is already deterring foreign buyers. Less than 1% of housing purchases in Metro Vancouver since the tax went into effect were funded by foreign buyers, down from over 13% in the seven weeks prior to the new tax, according to government data cited by The Globe and Mail.

Woloshin told Business Insider that anecdotal reports from realtors in the area and nearby Seattle showed that the tax is having a "marked effect" on foreign-capital inflows. Some of that money could leave Vancouver for US West Coast cities further south, he said.

London ranked second on the list of cities with bubble risk. Woloshin said its housing market has become more attractive to foreign buyers since the pound weakened after the UK voted to leave the European Union.

But if the aftermath of the Brexit vote eventually forces big companies based in London to relocate, home prices in the city could take a hit, he said.

Further down the list, "excessively low interest rates" that are inconsistent with the performance of the real economy are keeping home prices high around the world, according to Holzhey.

"This is illustrated by the Eurozone, where monetary policy cannot accommodate the macroeconomic differences between the countries," Holzhey said.

"Yet other countries such as Australia, Canada and the UK are also keeping their interest rates artificially low. When combined with rigid supply as well as sustained demand from China, this has produced an ideal setting for excesses in house prices."