A Swiss investment bank ranks Toronto as third most at-risk for a bubble of all major cities in the world
Toronto real estate prices are so inflated that a Swiss investment bank is warning the city is sitting on a high-risk bubble.
Toronto ranks as the third most over-priced major city in the world, according to the UBS Global Real Estate Bubble Index.
Fair value would score -0.5 to 0.5 on UBS’s bubble index. Over-valued scores between 0.5 and 1.5. The city, where the average house price is $1,012,506, has a 1.96 rating. That is nearly four times as high as New York, which UBS calls over-valued at 0.56.
Among the most at-risk cities in the world, Toronto falls just behind Munich and Frankfurt. They score 2.35 and 2.26, respectively. And Toronto is at a greater risk for a “sharp correction” than Hong Kong (1.79) and Paris (1.68).
The only other Canadian city on the UBS index is Vancouver. Like Toronto, the west coast city was designated an at-risk bubble in 2018 with a 1.92 score. But Vancouver prices are milder now. In 2020, Vancouver is overvalued at 1.37, according to UBS. It’s still has a higher score than fellow “over-valued” cities like London, Tokyo, Los Angeles and San Francisco.
Dubai, Singapore, Milan and Madrid are among the cities the UBS index deems fair-valued.
The report from UBS is the most recent warning that Toronto real estate prices could see a sharp decline.
The Canada Mortgage and Housing Corporation’s spring outlook suggested that the average Toronto house price could bottom out at $739,000 in 2021. A recent report from Moody’s made a more conservative prediction that Toronto home prices could fall nine per cent next year.
These predictions repeatedly warn that the COVID-19 impact on employment and immigration will make home prices a little more humble.
The Canadian government and banks are delaying the COVID-19 impact with low mortgage rates, deferrals and financial assistance via CERB and other programs. But the UBS report argues that a decline in the rental market and the rapid inflation of pricing from the previous dozen years are reasons to expect a correction. The rising Canadian dollar will also disincentivize foreign investment.
But the hot Toronto real estate market repeatedly shrug off such sky is falling concerns.