Toronto has the highest risk of a housing bubble among the world’s major cities, according to a new report.
Swiss Federal Bank (UBS) report [pdf] The ‘Bubble Index’ ranked top with Toronto at 2.24, followed by Frankfurt at 2.21 and Munich at 1.81.
Vancouver’s bubble index is 1.70, the sixth highest among the 25 cities surveyed.
Factors related to economic imbalances, such as excessive lending and construction activity, are aspects that UBS considers when calculating the bubble index. The term bubble refers to the mis-pricing of an asset that is not proven until the bubble bursts and the price changes.
According to UBS, price adjustments have already started or will begin in the next few quarters in most cities surveyed due to imbalances caused by higher interest rates and rising house prices.
“Rising interest rates, inflation, financial market turmoil and deteriorating economic conditions are putting pressure on the housing boom,” the report said. It said this could lead to a “secular stagnation” in house prices, but that’s not the most likely outcome because the property market rarely stagnates. will be the last pillar of a collapsing market, UBS said.
A UBS report points to the central bank as a key driver of soaring home prices, with low lending rates and new home demand outstripping the pace of new home construction leading to growing optimism among buyers in recent years. It is said that it has provided a reasonable price forecast.
In some of the world’s largest cities, house prices accelerated by 10% from mid-2021 to mid-2022, the highest increase since 2007. Meanwhile, average mortgage rates have almost doubled in Toronto and Vancouver, according to reports.
“We are witnessing the global homeownership boom finally coming under pressure, and we expect significant price corrections in the coming quarters in most high-value cities,” the report said. the book says.
Home prices in Vancouver and Toronto have tripled over the past 25 years, combined with falling mortgage rates and growing population shortages in urban areas, UBS says its bubble index has been a warning signal for years. It is said that he was emitting
“In such an overheated market, housing affordability has already been stretched so much that a recent rate hike by the Bank of Canada could be the final straw to break the camel’s back,” UBS reports. said.
Royal LePage predicts price drop
The latest from Royal LePage weather The average home price in Canada is $774,900, up 3.3% from last year, according to the. However, this quarter is down 4.9% compared to the previous quarter.
They expect to see another 0.5% decline in the fourth quarter.
Royal LePage President and CEO Phil Soper said in the forecast report:
The average home price in the Greater Toronto Area (GTA) rose 2.1% from last year to $1,098,100, but fell 5.9% from the previous quarter, according to Royal LePage. We expect a further 3.5% decline in the fourth quarter.
“While some investors are looking to take advantage of lower prices, many first-time buyers are putting their purchase plans on hold for now. Royal LePage Chief Operating Officer Karen Yolevski said of the GTA market:
“Potential buyers who have secured mortgage rates are eager to trade before they expire and ahead of another potential rate hike,” Yorevski said, noting that fall “demand A moderate increase in