Hong Kong, New York City, and Paris? They have nothing on Canada’s biggest real estate bubbles. UBS released its annual Global Real Estate Bubble Index today. Two Canadian cities managed to rank near the top of the charts — Toronto and Vancouver. Toronto home prices now rank as the second biggest bubble in the world. As for Vancouver, it was a few spots lower, beating notorious markets like San Francisco and Singapore.
Toronto Real Estate Is Now The 2nd Biggest Bubble In The World
Toronto real estate is now the second biggest bubble in the world, moving up a spot from last year. While it’s not the top spot it held in 2017, it has a much higher bubble risk score. Pretty impressive for a city that didn’t even rank in the 2016 index. That’s how fast prices have grown.
UBS said Toronto real home prices doubled over the past ten years, in part to population growth. In 2018, they observed a housing correction that was restoring some fundamentals. It carried through to 2019, but came to an abrupt stop by year-end. At that point, falling mortgage rates reignited high home price growth. It was helped by the Bank of Canada’s mortgage liquidity injections. Since the pandemic hit, this trend has accelerated even faster.
The big Swiss bank believes that growth might be coming to an end soon. “The Bank of Canada is expected to taper in 2022, well ahead of the Federal Reserve, a move that would likely raise mortgage rates and discourage foreign real estate investments,” said the bank. Adding, “this, in turn, could lead to an abrupt end to the current housing frenzy.”
Vancouver Real Estate Is Now The 6th Biggest Bubble In The World
Vancouver real estate is also climbing the charts, taking the sixth spot — up from the eighth a year ago. UBS observed a similar trend to what they found in Toronto. There was a price correction from 2018 to 2019. It was abruptly halted by the end of 2019, when mortgage rates fell and it reversed course.
UBS sees Vancouver cooling by the same mechanisms that apply nationwide. “Tightening down payment and income requirements for mortgages should moderate current market dynamics.”
Global real estate prices are often used to dismiss Canadian home price growth. It’s true, global home prices are climbing due to a low rate environment. What’s happening in Canada is different though, just based on the sheer size of the climb. Few bubbles have inflated this fast, with policymakers enthusiastically cheering them on.
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