Why Miami Is One of Most Overvalued Real-Estate Markets in the World
In a September research note from the investment bank, Miami came in as the third most richly valued market on a list of 25 cities. Los Angeles was the only other US city the firm classified as “overvalued,” coming in at ninth on the list.
With a score of 1.38 on the bank’s Global Real-Estate Bubble Index, Miami is on the upper end of “overvalued” territory and beginning to brush up against the “bubble” range of 1.5 and above. The last time the city was this overvalued was during the mid-2000s housing bubble. Miami’s score is shown below in the green line, with Boston in blue and New York in grey.
UBS
UBS
UBS’s index is made up of five variables: price-to-income ratio; price-to-rent ratio; change in mortgage-to-GDP ratio; change in construction-to-GDP ratio; and city-to-country home price ratio. The two components scoring highest for Miami — and the main drivers behind its high real-estate valuations — were price-to-income ratio and city-to-country home price ratio.
According to UBS, the city’s price-to-income ratio is high due to high out-of-state and foreign demand for properties in the city.
“The most sought-after destinations in recent years are Singapore, Dubai, and Miami,” the note said. “In those hotspots of international demand, rental and for-sale price growth clearly stand out. Prices are up as much as 40% and rents 50% higher than two years ago.”
The bank added: “Miami is the main beneficiary of the increased attractivity of sun belt cities in the US.”
As for the city-to-country ratio, home prices in Miami are vastly outperforming those across the rest of the US, the bank said.
“Housing prices in Miami continued to increase faster than the nationwide average. The price level has more than doubled over the last 10 years,” UBS said.
Over the last year (as of the end of Q2), home prices in Miami are up 6%. Over that same time, national home prices have stood completely still, according to the S&P/Case-Shiller U.S. National Home Price Index. On a year-over-year basis from Q2 2022 to Q2 2023, the median US home price has fallen 7.3%, according to data from the Census Bureau and the US Department of Housing and Urban Development. According to Redfin data, Miami’s median home price is $575,000, while the national median is $412,001.
Miami’s price-to-rent ratio is less severe, and the US’s mortgage-to-GDP and construction-to-GDP ratios are in fair-value territory, UBS said.
Other measures show that Miami’s real-estate market is overvalued.
According to market-research firm Moody’s, the city’s home values are 35% above their fundamental value based on things like local income levels, household formation rates, and construction costs. Researchers at Florida Atlantic University also found that property values in the city are overvalued by 38% when considering price levels relative to incomes, though they don’t believe prices will crash to the degree they did in the mid-2000s. And John Burns Research recently said buyer demand in Miami could wane due to domestic migration out of the city.
