Miami Is The Most Overvalued U.S. Housing Market, UBS Study Finds

The rapid rise in home values in Miami has put the city’s housing market on the cusp of bubble status.

Miami is the most overvalued housing market in the U.S. and ranked third among 25 global cities in investment bank UBS’ 2023 Real Estate Bubble Index report. The city has climbed seven spots in the index since 2022, overtaking international hubs like Hong Kong, Toronto and Munich. It now sits behind only Zurich and Tokyo.  

Home prices in Miami have more than doubled in the last 10 years, according to the report. Values have continued to pace upward, rising 6% after adjusting for inflation from mid-2022 to mid-2023, even as the five major U.S. cities tracked in the report together saw prices fall by an average of 2%.

“Miami is the main beneficiary of the increased attractivity of sun belt cities in the US,” the report’s authors wrote. “Demand is bolstered by continued population influx and the still relatively low absolute price level compared to incomes. Having said that, sales numbers have dropped and the upward pressure on prices has eased as mortgage rates went up.” 

The city received an index score of 1.38 in the report, making it the most overvalued city in the world that is not in bubble risk territory, which is defined by a value of 1.5 or above. Zurich and Tokyo are both in housing market bubbles, per UBS.

Miami's climb up the chart was largely a result of declining values elsewhere — Miami’s 2022 index value was 1.39 and it was 1.24 in 2021 — as rising interest rates have led to the sharpest drop in inflation-adjusted home prices across the globe since the financial crisis of 2008, according to the report.

“Annual nominal price growth in the 25 cities analyzed has come to a standstill after a buoyant 10% rise a year ago,” the report’s authors wrote. “In inflation-adjusted terms, prices are even 5% lower now than in mid-2022. On average the cities lost most of the real price gains made during the pandemic and are now close to mid-2020 levels again.”

The UBS report highlights Miami, Singapore and Dubai as hotspots of international demand that are defying the trend, noting that home prices in those markets are up as much as 40% over the last two years and rents have climbed as much as 50%. 

Miami’s relatively stable index score reflects a market that has largely held onto rapid pandemic-era price growth even as demand cools. 

The average sale price of a single-family home or condo on the city’s mainland was $786K in the third quarter, down 1.8% from the previous quarter but up 5% from last year, according to Douglas Elliman. But Miami Beach and the barrier islands have continued to see prices rise, with a $1.6M average sale price representing a 6.3% increase from the second quarter and a 25% spike from last year. 

Price growth has remained in positive territory even as sales volume has declined and the number of months of available inventory has increased. Year-to-date sales volume is down 36.5% compared to sales through the third quarter of last year across both Miami and Miami Beach, with 13,273 homes sold in the first nine months of 2023, according to Douglas Elliman. 

Miami’s resilience is contrasted by most other markets in the UBS bubble index, which is calculated through a weighted average of five factors: price-to-income ratios, price-to-rent ratios, change in mortgage-to-GDP ratios, change in construction-to-GDP ratios and city-to-country price ratios. 

Of the five U.S. cities tracked in the report, only Los Angeles is also considered overvalued, but its index score fell to 1.03 in 2023 from 1.31 last year. New York, Boston and San Francisco are each considered fair-valued markets after being ranked as overvalued in 2022. 

New York was the only other U.S. city to see positive price momentum, rising 3.2% annually after adjusting for inflation as it bounces back from significant weakness during pandemic lockdowns, according to the report.  

San Francisco has seen the largest drop in values year-over-year, falling by 10.6% at the end of the second quarter after adjusting for inflation. The city has fallen into fairly valued territory in the report, which said the city is under pressure from quality-of-life issues, hybrid work patterns and competition from Sun Belt cities.

Home prices in Los Angeles were down 3.7% compared to last year and Boston saw values decline by 3.4%.

“As a result of the sharp rise in mortgage rates and record-low affordability, housing demand has weakened significantly in the US cities we analyzed,” the report’s authors wrote. “But income growth, a lack of available for-sale inventory, and a strong labor market have prevented a meaningful correction in home prices.”