STOREYS Editorial Team
The UBS Global Real Estate Bubble Index 2021 confirmed what did not surprise many, revealing that Toronto has the second largest real estate bubble risk in the world, somewhere higher than its third place in 2020.
The index analyzes housing prices in 25 major cities globally.
Toronto scored 2.02 in the index and the distribution was as follows:
- Bubble risk (> 1.5)
- Overrated (0.5 to 1.5)
- Fair value (-0.5 to 0.5)
- Under rated (-1.5 to -0.5)
The report naturally points to Canada’s notoriously expensive cities of Vancouver and Toronto in talks about the country’s dramatic housing market and subsequent conditions that have prompted both homebuyers and economists to question whether we’re in a bubble for over a year – and whether it ever will burst.
Over the last 10 years in Toronto, the real price level has almost doubled during strong population growth and falling mortgage rates, says UBS. Real prices rose by nearly 8% over the last four quarters in Toronto, the report finds.
“Between 2000 and 2017, real house prices in Vancouver and Toronto rose almost unabated by more than 5% per year on average in an increase driven by falling mortgage rates, urbanization and international demand,” the report reads. “The imbalances increased and both markets had highly elevated scores in the bubble risk area.”
READ: What would a Canadian property bubble burst really look like?
The report refers to the introduction of tighter financing conditions, new taxes on foreign buyers, available fees and stricter rent controls to cool the market. Prices in Toronto stagnated, while Vancouver reported a price correction of almost 10% between 2018 and the end of 2019.
UBS notes the emergence of another frenzy on the real estate front in 2019, with buyers taking advantage of falling mortgage rates. “Imbalances and index scores have risen accordingly,” the report reads. Following the introduction of restrictive rules, the Toronto market took a breather in 2017 and 2018, only to accelerate again with a vengeance in 2020. Real prices rose by almost 8% over the last four quarters.
The result is Toronto’s second place on the bubble risk front among all analyzed cities. Meanwhile, Vancouver has also returned to the bubble risk area. Vancouver saw double-digit price growth with a ranking of 1.66 in the analysis.
“Stretched affordability, tighter requirements for mortgage stress tests and an expected tightening of monetary policy by the Bank of Canada will challenge price levels in the coming quarters,” the report reads.
Frankfurt was the only city to rank higher than Toronto, with a score of 2.16. Hong Kong had the third largest bubble risk with a ranking of 1.90.
According to UBS, housing prices in urban centers around the world have continued to rise due to the rise in teleworking and because affordability in cities was already severely strained before the pandemic.
STOREYS Editorial Team