Toronto Is The Biggest Real Estate Bubble In The World, Vancouver 6th: UBS

A Swiss mega bank is warning the global credit bubble has produced a global real estate bubble. UBS published its 2022 Global Real Estate Bubble Index this week, and Toronto took the top spot. Vancouver remains in the Top 10, with the bank noting all of Canada is generally frothy. The recent price growth is attributed by a rapid expansion in credit, and that won’t last. As the economy slows, the last pillar holding up the market is starting to weaken.

Global Real Estate Prices Are Bubbly, Especially In Credit Bubbles

Global real estate prices are growing at one of the fastest rates in history. UBS analysts found prices in the 25 markets tracked for bubble risk have increased an average of 10% over the past year. It was the strongest increase since 2007, during the last global housing bubble. 

An accompanying surge in mortgage credit makes this an even larger concern. It’s the second year it was observed in the cities they track, occurring in virtually all markets. Soaring credit growth is typical of a real estate bubble. 

“The lending boom was conspicuously strong in the Middle East, the US, Canada, and Australia,” said UBS. “Since the pandemic we observe an increase in aggregate household debt relative to economic output in many of the analyzed economies.” 

Global Real Estate Prices Are Falling, Last Pillar of Support Is Weak

UBS explicitly mentions they don’t state whether or not a correction is coming, but they did highlight a concern. As interest rates climb, the economy slows, and home sales fall — there’s only one thing propping up the market, and that’s labor. 

It doesn’t matter which country you’re looking at, but global labor is suddenly short right across the world. “The robust labor market therefore remains the last pillar of support for the owner-occupied housing market in most cities,” wrote the bank.  

They add, “With a deterioration of economic conditions, this too is at risk of faltering. Indeed, we are witnessing the global owner-occupied housing boom finally under pressure, and in a majority of the highly-valued cities, significant price correction” 

Toronto and Vancouver Real Estate Are Two of The Biggest Bubbles In The World

The Canadian real estate bubble dominated the list, with two cities in the top 10 —  only matched by Germany. Toronto pushed higher, to take the top spot of the world’s largest real estate bubble. Vancouver held on to sixth place, where it was found in last year’s report. 

The bank warns the shortage narrative may have applied in the past, but this isn’t quite the case now. “The housing boom has become more of a countrywide phenomenon and is therefore hardly driven by a shortage of construction,” he said. 

BMO recently made a similar assessment in an interview with us. The bank’s senior economist said strong fundamentals supported the market, until the recent low rate boom hit. Home prices had surged far in excess of any fundamental support, and the bank now expects a significant correction to balance this excess.

13 Comments

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  • J_Morrow 3 months ago

    Wait a second! Wait a second! This can’t be right! This time is supposed to be DIFFERENT!!

  • dave frazer 3 months ago

    So in Toronto they need to fall another 55% from where they are now to be at the correct value or about 70% from the peak. that would bring them back to about 3 times earnings. Not what most people expect but its possible.

    • Chris 3 months ago

      Upvote

    • Doomcouver 3 months ago

      History repeating itself. Toronto led the housing collapse in the early 90s as well. The only thing different this time is the bubble is significantly larger.

  • Paul 3 months ago

    Divorced from fundamentals you say? Correction imminent? Yes. The only reason why we are not already talking about this in past tense is the 2020 shenanigans.

  • jordan 3 months ago

    Page 5: “A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices.”

    Macroeconomic momentum has slowed across the board. We don’t know if the worst is yet to come but it has been very, very ugly the last 6-7 months.

    Investors or ‘multiple property owners’ were responsible for most of the buying activity throughout the pandemic… if anything, investors (real investors) are taking stabs now because they don’t care about interest rates; they care about purchase price.

    Major supply increase? In Toronto? In May, CMHC reported 36K new housing units were added in 2021 (in line with 20-year historical average) and the next month CMCH reported that in order to restore housing affordability (however that’s defined) Canada needs to build 3.5 MILLION homes by 2030… labour shortages + a slew of economic factors won’t make that happen. Immigration numbers are smashing expectations and they HAVE money to spend. Whether thats on resale or rentals, cost of living will continue to go up.

    Overnight rate needs to hit 8%+ for some sort of ‘major supply increase’. Owners will continue to hold on for dear life because they saw what neighbours sold for in the last 2 years & won’t sell if they don’t need to. If they are not in a position to sell, they will wait.

    If things get tough for FTHB who over-extended themselves, hopefully the bank of mom and dad can step in to help (thanks to the $150Billion in generational wealth transfer at the gates) or they rent out the place they overpaid and move back home.

    Avg prices will continue to trend downward over the next 6 months or so but I think the worst is over. Spring 2023 will be a different market. Going back to a more ‘seasonal’ real estate cycle.

    Its not a trend yet…. but if you look at avg price for semi-detached.. there are month-over-month (Aug->Sept) INCREASES in Toronto (+7.4%), Halton (+3.3%), & Peel region (+1.3%).. where are those headlines?

    Once the BoC stops raising rates, there will be an added element of certainty for buyers/sellers and that will just invite even more demand and the new cycle will begin.

    Once the headlines change from doom & gloom to “the housing market is heating up” the new cycle will begin.

    Low Supply = More Demand = Higher Prices.

    Economics 101.

    New inventory in GTA has been hitting multi-decade lows.
    Will most likely continue to do so leading into spring.

    Don’t just read the headlines.

    Read the data.

    • Paul 3 months ago

      This sounds a bit desperate. Have you been paying attention to what is brewing in finance globally? All of your “real” investors have daisy chained properties together thinking the gravy train never stops.

    • dave frazer 3 months ago

      The bank of mum and dad is closing fast as their property drops in price and they are worried about how much its going to fall and the security of any loan.. The banks are scared of falling prices and negitve equity. They will not be lending too much on property. Look at the UK pulling banks pulling quickly out of morgage availability 2 weeks ago. The US feds rate is now expected to pass 5% Canada is tied to that. so 8 % mortgages are a real possibility. They are over 6% in the Uk and 7% in the US already and still going up . Canada is no different. The canadian dollar is falling and this will need to be corrected.
      That requires Canadian rates match or exceed the U.S. interest rate. The market will come back yes but when, Condos in Calgary have been rising recently but they are still selling for less than they did in 2016. Even though they have had lots of new immigrants this year and the price of oil is way up and their economy booming.
      Immigrants might spend but they are not stupid. Canada can easilly accommodate more immigrants without new housing. Immigants and Canadians just double up they will not like it but economics sometimes forces them. I bet the number of single occupant apartments is falling drasticlly as rents go up. Warsaw took in several million immigants from Ukraine in 3 months this year with not too many problems.

    • alex 3 months ago

      So much denial and cope in one post.

      • Ejayell 3 months ago

        30 years of the same song and dance. Economist predict and sometimes have to later explain deviations from predictions but overall the prices tend to eventually rise over time especially if location or weather plays a role for aging demographics or both local and international migration.

    • Kate 3 months ago

      Will see, will see

  • Craig 3 months ago

    3 times earnings was the maximum any sensible bank would traditionally lend. In the eighties I remember having a full time job and having to beg to get a credit card.

    How times regularly change.

  • Ron Bruce 3 months ago

    This may be why CSIS has visited the Mayors running for election in Vancouver. There is far more going on at every level in Real Estate that isn’t being detected or transparent.
    https://www.vancouverisawesome.com/local-news/vancouver-mayoral-candidate-ken-sim-met-with-csis-5910212 Flamboyant Chinese billionaire buys three B.C. malls
    Douglas Todd
    Publishing date:
    Oct 11, 2022
    https://vancouversun.com/opinion/columnists/flamboyant-chinese-billionaire-buys-three-bc-malls#:~:text=In%20the%20past%20two%20years,Hill%2C%20just%20north%20of%20Victoria.

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