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UBS crowns Toronto as bubbliest housing market in the world

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Out of 25 major real estate markets around the world, Toronto homes score the highest in UBS’s Global Real Estate Bubble Index REUTERS/Mark Blinch (CANADA BUSINESS)

Not a title any city wants to win, but Toronto tops UBS’s Global Real Estate Bubble Index.

Canada’s largest housing market ranks first on the index with a score of 2.24, while Frankfurt, Germany is second with 2.21 and Zurich is third with 1.81.

The only other Canadian city in the index is Vancouver, which ranks sixth with a score of 1.70, sandwiched between Hong Kong and Amsterdam.

UBS cites strong population growth and, until recently, ultra-low mortgage rates as key drivers of the “long-term real estate bonanza in both Canadian cities.”

The presence of a large number of real estate investors in the market has also contributed significantly to pushing up housing prices.

“Bubble risk is again very high in both Canadian cities,” UBS said in a report released Wednesday.

The 26-page report examines 25 major real estate markets around the world and is based on Q2 data.

Home prices have fallen significantly this year in Toronto and Vancouver, but higher mortgage rates have offset improvements in affordability for homebuyers. , Greater Vancouver home sales fell 46.4% in September compared to last year, while Greater Toronto home sales fell 44.1% over the same time frame.

“In such an overheated market, housing affordability has already been stretched significantly, and the recent Bank of Canada rate hike could be the final straw to break the camel’s back,” the report said. rice field.

“Not only do new buyers and owners who are renegotiating their mortgages have to pay higher interest rates, they have to provide more income to qualify for the mortgage.”

Many realtors, real estate associations and other market players have repeatedly called for Canada to build a way out of the affordability crisis, but UBS has identified housing supply as a key driver of affordability. It seems to be shrugging off the lack.

“The housing boom has become a national phenomenon, so it is hardly caused by a lack of construction,” he said.

Scott Ingram, CPA and real estate agent at Toronto-based Century 21 Regal Realty, explains why the housing shortage hasn’t been mentioned more prominently by UBS, especially given Canada’s increased immigration targets. He said that he was “clearly troubled.”

He also said the recent price drop has removed some of the vulnerability in Toronto’s housing market.

“Is there a risk of a bubble in our market? Absolutely. Has some of the air already been released in the last few quarters? Yes. By the time they start using the 3rd and 4th quarters, their magic box scores should drop,” he said in an email.

UBS acknowledged that it is difficult to prove whether an asset class bubble is still ongoing, adding that the true existence of a bubble is usually proven only after it bursts.

However, “Historical data reveal patterns of excess in the real estate market. Typical signs include decoupling of prices from local income and rents, and excess real economic activity such as lending and construction activity. “The bubble index contains these types of imbalances.”

Michelle Zadikian is a Senior Reporter at Yahoo Finance Canada. follow her on her twitter @m_zadikian.

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