Toronto Real Estate Second Highest Bubble Risk Globally – UBS

Price BubbleEach year, UBS, a large global firm offering wealth management, asset management and investment bank services, publishes a report called the “UBS Global Real Estate Bubble Index”. UBS says that:

“Price bubbles are a recurring phenomenon in property markets. The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. But historical data reveals patterns of property market excesses. Typical signs include a decoupling of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns. The Index does not predict whether and when a correction will set in. A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices.”

In the 2019 Bubble Index Report, UBS finds that Toronto has the second highest (next to Munich and slightly ahead of Hong Kong and Amsterdam) bubble index in the world, after being rated third highest in 2018. Toronto’s bubble index has actually declined since last year, however, prices have risen relative to most other major cities worldwide:

 

Interestingly, Vancouver’s bubble index has fallen significantly since last year, as prices there continue to fall, though it is still considered to be a ‘bubble risk’ city. There are no US ‘bubble risk’ cities, though several are considered overvalued.

In the context of the last month’s upward spike in Toronto real estate prices, this information might get federal and provincial politicians thinking about even more regulations to limit price growth in the GTA.