Skyscrapers are an essential part of urban development, allowing millions of people to live and work in dense cities. But while they showcase the latest architectural aspirations and engineering innovations, they can also be expressions of ego and vanity (highly motivating factors for some). Having “The World’s Tallest Building” located in your city is the ultimate bragging right-until another city comes along and breaks it. At 828 meters in height, the current record holder is the Burj Khalifa in Dubai, part of the United Arab Emirates. But recently, building towering skyscrapers are becoming something of an arms race and many believe this portends a real estate bubble. In 2014, almost 100 buildings over 200 meters in height were built, a record.

But often, these ambitious projects are planned near peaks of optimism that manifest themselves as equity bull markets and economic expansion, when confidence and financing are high. Construction often breaks ground in the late innings of bull markets and are completed in bear markets. And when these towers are setting world records, it usually portends financial turmoil around the corner. This is known as The ‘Skyscraper Curse’, when the endeavor of building record-breaking skyscrapers has an uncanny knack of signaling major tops in the economy and financial markets.

Recall the Empire State Building was once the world’s tallest building. It was planned near the end of the Roaring Twenties but actually opened its doors in 1931, after the 1929 stock market crash and just as the Great Depression was getting going. There are more recent examples also, such as the current world’s tallest building, the Burj Khalifa in Dubai, which opened in 2010, during the Great Recession. Further, Donald Trump planned to build Trump Tower, the tallest residential building in New York City in 1998, right in the middle of dotcom boom. It was completed just as the tech bubble was bursting.

Saudi Arabia is building their newest entrant to the global arms race, with the Kingdom Tower. The building is trying to become the newest record holder at over 1,000 meters high. It’s expected to be completed in 2018 with a cost of $1.2 billion. It will feature a surrounding moat, an observation tower for tourists and will taper to a sharp point at the top. It is reported to be a mixed-use building, combining luxury apartments and office space with a full Four Seasons Hotel. Speaking to the ego mentioned earlier, Saudi Arabia poached the key architect, Adrian Smith, from the Burj Khalifa construction for the Kingdom Tower project.2

But it’s no secret Saudi Arabia’s economy is dependent on the price of oil. Last year, The Guardian reported early construction of the Kingdom Tower in the Saudi desert. Then, the price of oil was around $60. The original plans were at least a year prior to that, when oil was above the $100 level. It’s now pushing $30.

Is the boom coming to an end? In Dubai, there was a massive New Year’s Eve fire at the Torch Tower, just 600 yards from the Burj Khalifa.3 Could this portend the demise of these skyscrapers and possibly global real estate as a whole? We’ll find out if the Skyscraper Curse is for real when the Kingdom Tower is completed in 2018.

Residential Real Estate Bubble?

Persistent declining interest rates, an array of tax incentives and record credit injections from the Federal Reserve have allowed the U.S. housing market to recover to record levels. The national average median sales price in June 2015 was $236,400, finally surpassing the housing bubble record of $230,400 set in July 2006.4 Despite the claw back in home prices, a worrisome disparity can be seen in the weak breadth of the housing recovery. In 2015, the percentage of families owning a home in the United States hit a 48 year low.5

But warning signs for the residential real estate markets are starting to surface. In an eerie echo to the last financial crisis, we are seeing cash-out refinances resurface, jumping 68% year over year. Mortgage rates, while off the historic low of 3.31% in 2012, are now around 4% and seem poised to move higher since the economists at the Federal Reserve raised rates last December.6 A disconcerting report from CNBC makes the case that today’s housing today is a ‘bubble larger than 2006’ while famed hedge fund manager and shareholder activist Carl Icahn has repeatedly expressed his opinion that real estate is in a bubble. If that’s the case a lot of promising careers in finance and real estate will be severely hindered. Only time will tell.

The luxury market has also been on a record tear, especially around major metropolitan areas. In the borough of Manhattan in New York City, where giant construction cranes and scaffolding is seemingly on every corner, real estate hit a new price record. The average price for a Manhattan apartment hit a dizzying $1,737,565 in. New York City apartments, famous for their tight quarters, currently squeeze nearly $1500 out of each square foot.7 Comparing this to the national average of $125 per square foot really puts this price inflation into perspective.8 Tight inventories and low interest rates are often cited causes. But it’s not only New York City that is experiencing red-hot markets. Howard Lorber of Douglas Ellison Properties reports similar behavior in Miami, Los Angeles and Aspen, Colorado.

Commercial Real Estate Bubble?

On the commercial side, there is similar ebullience, but mostly from foreign buyers. The famous Waldorf-Astoria hotel in New York City sold last year for just under $2 billion to a China’s Anbang Insurance Group. This follows private equity firm Starwood Capital’s sale of the tawny Baccarat Hotel to Chinese Sunshine Insurance Group for $230 million or a record $2 million a room.9 But the red-hot New York City condominium market reveals some astounding trends. Of the seven largest condominium projects in New York City, all of them are being financed by foreign banks.10 Elliott Wave International, a financial market forecasting firm, comments that foreign buyers fueled much of the current real estate boom but they “invariably commit to major trends as they conclude”. This certainly seems to be the case in New York City.

But others in the industry aren’t as fearful. Bruce Batkin, CEO of Terra Capital Partners in New York City, argues against a real estate bubble and notes that by a couple different metrics (prices compared to both rents and income) commercial real estate fundamentals are 20% cheaper than they were in 2005, the peak in real estate just before the financial crisis.11 Stay tuned to see who will be right.