Canada

UBS Ranks Toronto and Vancouver In Top 5 Global Real Estate Bubbles

Toronto and Vancouver real estate are two of the world’s most bubbly markets, according to a Swiss mega bank. UBS analysts updated their Bubble Index, with both cities near the top of their list. The bank noted prices are elevated in most economic centers, so they’re not alone. Historically, analysts noted, elevated asset prices decline as interest rates rise.

Global Prices Are Elevated And “Cracks Are Starting To Appear”

The bank noted declines to home prices, market imbalances, and rising rates as threats. Half of bubbly markets are seeing prices stall or decline, which analysts called “cracks” in the market. In the other half, prices continued to rise even further, making the bubbles worse. The lack of affordability combined with rising rates make further price gains unlikely. This is likely to be a deterrent for seasoned investors to continue to buy. Although your cousin Jim that made a year worth of salary flipping a pre-sale assignment is probably still bullish.

“Low affordability also jeopardizes cities’ long-term growth potential and could cause investors to reassess their expectations about future capital gains.”

UBS Global Real Estate Bubble Index, September 2018

Toronto Real Estate Is The 3rd Bubbliest Market In The World

Toronto real estate claims the 3rd spot on the bubble index, dropping from first place. Analysts at the bank noted price stabilization, but elevated valuations. They further noted prices have trended upwards since the 1990s, and are more than 50% higher than 5 years ago. They believe higher mortgage costs and tighter lending “should limit the upside.” TL;DR a long uptrend, with a limit on further upside potential.

UBS Ranks Toronto and Vancouver In Top 5 Global Real Estate Bubbles - chart

Source: UBS.

Vancouver Real Estate Is The 4th Bubbliest Market In The World

Vancouver held strong in fourth, but the size of the problem is still getting worse. The report notes market imbalances increased, with above average growth for rental prices. Home prices have been growing since the 1990s, and have doubled in 12 years. The “strained affordability” will become an issue if mortgage rates increase. Those reasons pushed Vancouver even higher on the bubble list than last year.

UBS Ranks Toronto and Vancouver In Top 5 Global Real Estate Bubbles - Canada chart

Source: UBS.

The bank warns investors in bubbly markets that they should not expect real price appreciation in the “medium to long run.” That means we’ve likely priced in a lot of future growth in today’s market.

Like this post? Like us on Facebook for the next one in your feed.

44 Comments

COMMENT POLICY:
We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Bluetheimpala 12 months ago

    Tick tock. Bought a house peeps. Is it gonna go down? Yup. Maybe by a lot; good thing this isn’t an investment ;0) . Will still drop by the trap house on the reg and keep poking around to make sure the riff raff stays away but the BD fortress is strong. Thanks to Grizz and the gang for always have by my back. See y’all when I see ya. Don’t let anyone spread filth. Get your debt right. Keep calm and BD on! BD4L.

    • Carlton 12 months ago

      What!

      I thought the market was headed for a correction, isn’t Toronto 3rd on the bubble list…..

      I thought rates were rising, banks appraisals were coming in less, people unable to close, sales slowing…..

      I thought as sales drop then prices would follow…..:

      I thought credit was tightening (b20) and less applicants would qualify making sales even slower….

      I thought inventory was starting to build, who would catch a falling knife…..

      I guess it’s best to buy before what’s happening in Vancouver happens in Toronto “ A Significant Downturn in real estate “ hopefully you had something to sell.

      Congratulations Blue, your poetic prowess will be missed.

      Stay blessed.

    • @xelan_gta 12 months ago

      If true:
      Nah, I’m pretty sure you got a really nice deal. Congrats man!

    • RR 12 months ago

      Lol, the biggest bear betrayed BD

    • Grizzly Gus 12 months ago

      BLUE! I’ve been away a couple days so just catching up on the shenanigans now. Obviously you know what your getting into, best of luck my friend. I’ll try my best to hold it down without you but hopefully the dark side pulls you back!

    • W 12 months ago

      Blue: Don’t leave your fellow BD ers high and dry. I’d really like to know what you think average prices should be for detached in Scarborough, North York, Etobicoke and downtown. I know it’s a tall order and it depends on quality, location etc. Just a rough estimate of averages would do.
      All the best regardless blue. To you and your family.

    • Depth386 12 months ago

      I bought in February, though Nov/Dec 2017 was really the best time. I’m not bullish on it but it’s just about break-even with renting. Live in it till you die.

  • Katia 12 months ago

    The beauty of looking at a city from the outside is they have no association to that city. They aren’t debating, well I live here, so it’s the best city in the world. They’re straight up looking at the market, and going you’re all idiots.

    P.S. I’m not a bear, I work in real estate. I think speculators have scared off the healthy market, and set dangerous expectations.

    • Josh 12 months ago

      Population growth continues to push demand. There’s nowhere else for immigrants to move, so it’ll continue to put pressure on the housing stock. It won’t be fixed unless they allow the city to develop into the Greenbelt.

      • TO Planner 12 months ago

        The Greenbelt myth is just being perpetuated to sell off government assets for cheap. If they sold off the land, it would likely be banked by developers for 20 to 30 years until the next peak land cycle.

        http://www.greenbelt.ca/new_study_finds_there_is_enough_land_for_decades_inside_and_out_sustaining_ontario_s_greenbelt2011

      • SUMSKILLZ 12 months ago

        or….remove restrictions to increased density on the thousands of streets that currently only allow single family housing. Bring on the duplexes, triplexes and fourplexes!

      • @xelan_gta 12 months ago

        Seems like population growth argument is very popular lately.
        Population growth doesn’t affect credit availability. Even if we have inventory 0% but ave. maximum budget of all buyers is 500k, well, you can’t expect ave. price to be $1M unless foreign capital is heavily involved.
        Credit is shrinking, maximum budgets are shrinking as well, foreign capital is almost gone from GTA and GV markets. That’s the most important development you should consider monitoring.
        To that point BoC & government don’t want maximum budgets (aka debt levels) to grow further so you are betting against BoC & government as well.

        Also population always grows fast during RE booms and slows down after the bust.

      • Bluetheimpala 12 months ago

        God damn it…every time I try to leave they drag me back in! Dude the green belt lie is just that. Drive around, there are swaths of undeveloped land all over the place. Just use your eyes(I also check land registries,lol!) But yeah let’s rape the environment even more…I mean more tornadoes and extreme weather patterns are super fun right? Go suck a toadstool. BD4L.

        • Skylar 12 months ago

          Dang! you bought a property 70% off the “Market value?”
          I use to do that with my dad. we would always buy ex-crack-head houses.
          they always had broken door handles and twisted hinges, punch holes in the walls with the occasional head sized hole. Furnaces were always missing, along with some sorry attempts half- finished drywall.

          Made a killing during this bull market fueled by idiots and money laundering.

          anyway, I don’t own a home, but would love to. congrats on your purchase, by the sounds of it, you could offset the coming decline by doing home improvements/additions.

      • Bob 12 months ago

        “There’s nowhere else for immigrants to move…”

        That made me spit up my coffee. The only ‘immigrants’ who can afford to move to Vancouver are the global 1%. Those who have benefited from the massive concentration of global wealth. Traditional immigrants – those escaping poorly managed countries and seeking a better life for their children – are only able to afford Canadian cities that have been untouched by the concentration of global wealth. Think Moncton and Saskatoon.

  • Q 12 months ago

    There can’t be a paradigm shift in prices without a major economic disaster. We dodged the last one because house prices hadn’t recovered from the 1990 bubble, but there’s really no good reason we’ll dodge this one.

    • Stok 12 months ago

      Usually high housing costs are the trigger. Drop in consumer spending and credit due to high mortgages brings everything else down.

    • Brad 12 months ago

      We didn’t “dodge the last one” .. we postponed the last one by dropping rates to unrealistic lows and flooding the market with consumer credit. We’re still going to hit the 2008 wash out, but we delayed it so that it would be less pronounced and easier to recover from when the rest of the world has growth.

      I’m not debating your point as we’re both on the same page, I just figured I’d clear it up a bit more.

  • ken 12 months ago

    Right now the conversation is about will it or won’t it crash? Or by now much? Soon the conversation will be about the tens(hundreds?)of thousands of jobs lost and businesses going bust. Amazes me that people in the R/E sector post on articles like this and it seems they are oblivious to the ramifications of a real estate crash, somehow thinking they will still have a job.

  • Jim 12 months ago

    If you look at the historic definition of “bubble” and “bubble pop” , in West Vancouver it’s popped.
    Prices are off 35%, and more, in SFD over $3m. And it’s trickling down. All it takes is a divorce ,tax or estate sale and the benchmark price resets lower, and lower, and lower.

  • Brad 12 months ago

    I do find it really odd that worldly news isn’t really talked about here… not on the official news but in the comments. The reason being that if NAFTA discussions are to fail we will see a large short term economic hit further increasing volume and price deceleration. Not only that but if the auto tariffs are not a bluff and actually happen we will see an instant major recession and plunge in real estate and all capital markets.

    Not only those factors, but the US fed specifically called out the worst case scenario of having massive consumer credit out and people taking out more credit backed by an asset that can trend down… which is… bingo… 2006-2008.

    The US fed will be raising again in December and is on track for at least 4 next year. Canada will be dragged in to follow because otherwise the currency nose dives and inflation runs rampant. Right now we’re literally moving into a late 80s mirror.

    I’ve noticed that both the bulls and bears completely ignore these factors for the most part, is there a reason?

    • MM 12 months ago

      I’ve been wondering how a NAFTA failure would impact RE. I have a hunch that is maybe why the BOC of Canada was thinking of raising rates more quickly last decision. That way they’d have more room to cut if the NAFTA fails and the economy needs a boost. I think that they will cut rates if NAFTA fails. How that will impact RE I can’t begin to guess…

    • Bluetheimpala 12 months ago

      This stuff comes up but by extension why aren’t we discussing terrorist attacks and the evaporation of the EU as well? Corporate bond failures triggering a massive debt implosion? The shipping supercycle which is going to have the brakes on next year, etc, etc. The long-term policy setting by central banks is always trailing, some may suggest it is as much as a full 4 quarters. Powell and Poloz are reacting to what happened in 2017. they can’t be reactionary like we’re 2 year olds who ‘just gotta have stuff’…central banks can’t disrupt the entire DEBT MARKET everytime Dougie farts some shit about slashing whatever or Baby T kills investment to focus on trans-energy-equality-indigenous hamster rights (I support hamsters and have a limited edition hamster pant available btw). Pointt? Yeah, sure NAFTA is a factor but when the Fed says they have a target and by all accounts everything is going gangbusters. Rates can and will go up even if NAFTA is killed because a)it won’t last for long, Donald is a moron and I understand more about auto economics b) see a. But you know what does last? Pooching out policy and keeping rates low so a bunch of stupid apes can go buy boxes to then try to sell to the greaterfool. Damn BD is like heroin mixed with kitten licks; can’t stop. BD4L.

  • AK 12 months ago

    I am a builder. To build a 2000sqft GTA house (labour and materials) with city services, permits, city fees, and community development charges, it costs about 700k. This doesn’t include the price of land or any upgrades to finishes. Just a bare-bones two story detached brick house within 200km of the GTA. Even if the government gave land to everyone for free, no builder would lose 200k to build a 700k house and sell it for 500k. Materials are expensive globally and home builders don’t work for free. It seems a lot of people have expectations for the market to drop to where this is the case, but again, its simply math. When evaluating any house that’s for sale, you need to determine what it would cost you to build it….Realistically, perhaps by a professional. Then it will become apparent that most current house prices are very accurate. It’s only going to get more expensive with inflation gentlemen

    • Pat 12 months ago

      TL;DR Builder says he’ll never lose money, because he didn’t overpay.

      Apparently the concept of supply and demand doesn’t apply to every aspect of the build, just the finished product. 😂

    • Bluetheimpala 12 months ago

      Oh darn, we have a live one…and why my friend is it so expensive? Hmmmm…I’ll give you a hint, assets bubbles are not contained just in the widget. When a semi-literate tradesman (yes I’m bing a dick) can command 150K a year to drywall because there isn’t anyone else, you have to question: is this person performing a task that warrants the compensation or is the value placed on the labour a fugazi and a result of unsustainable asset appreciation? Just more demand than supply. Same with the input materials. Builders need this cycle to end so you can begin developing all the land, which they purchased 10-20 years ago, on the cheap to ratchet up the profits…I just bought a house which I will renovate for 30% of the current cost just by waiting and watching everything implode. Not upset about my dickhead neighbour thinking he’s a god because he make bank doing pumbing…I will buy his house from under him and then pay him pennies to fix it and then rent it back to him, lol…I am such a prick. God, time to detox; no more BD for a week. BD4L.

    • @xelan_gta 12 months ago

      AK, while your estimate is definitely on a higher end, you can build a custom house for 400-500k and for large developers the cost is even lower, but it’s not the point.
      The point is that you are correct, RE bubble inflated not just house prices but everything associated with them: fees, materials, trades quotes etc.
      Everyone is benefiting from the bubble, even the government.

      The problem is that everything is now inflated to such point that local population can’t afford it. And it even inflated rents as well to the point when people started living cities.

      Is there a good way out from this situation? Not really, unless you believe that wages will grow 10%+ a year. Everything is inflated to such extent that it can only be fixed with a hard landing.

      In US after 2008 crash construction costs for residential properties dropped by 17%.
      https://edzarenski.com/2016/01/31/construction-inflation-cost-index/

      • Joe 12 months ago

        Lol AK…700k for a builder to build a 2000 sq feet house bare bones…you must be charging insane cost of labor and buying materials from very high end places for that price at $350 per sq feet.

    • Jeremy Shier 12 months ago

      I’m not an expert on the matter, but if you say it costs $700K to build a house within 200km of the GTA, why do perfectly nice houses in, lets say, Windsor go $300 to $400K?

    • Brad 12 months ago

      umm I’m sorry but Waterloo is within your “200km of the GTA” and right now I can go pick up 2000-2300 sq ft brand new builds in the top school district for $575-620k… the prices here have already taken a dive by roughly 7-8% … for 700k right now you’ll be picking up 2800-3200 sq ft, top finishings, and with a nice lot backing onto green space in the top school district.

      • Brad 12 months ago

        Also just to note, right now it is builders holding completed homes that they can’t sell and have been sitting for months. Currently you can see a few that have dropped 40k and a few 25k … and it’s just going to go lower as the sales volume here is constantly drying up.

        There used to be lines to pick up all the pre-sales, and now the builders can’t even offload immediate possession builds… what do you think happens next?

    • neo 12 months ago

      AK,

      Sorry dude. You can build a just a 2,000 sq/ft cookie cutter house without land in the equation for $500,000 easily. $700,000 would be a custom built house.

  • Jimmy 12 months ago

    Ok seriously the not enough housing argument is getting old.

    Check CHMC housing starts and compare it to population growth data.

    The data in no way supports the argument that the population is growing faster than the supply of housing.

    If there is a housing shortage show it to me with data. I can be convinced until then. Stop perpetuating this idea. It is irresponsible to say the least and to be honest I think if your in the business it should you liable for these words.

  • Lessdanadalla 12 months ago

    Buy a house before they’re all gone!!! While wrapping up that deal, ask bank about second mortgage for that cute one bedroom condo … don’t let downers question your sound business endeavors. S*** only goes up so start building that equity!

  • BlueStreak 12 months ago

    I work with a builder as well. We have built over 100 homes/year for the last 4 years or so. If we build 25% of what we’ve done in the past in 2019, it’ll be a good year.

    Land prices and the labour component to build will come down as this thing unravels. Period.

    We have already noted and capitalized on the softness of masonry labour to the tune of 10%. More will come.

  • Contrarian 12 months ago

    PastToronto housing price bubbles have burst with corresponding rapidly declining prices down to as much as 50% of their peak values. In the past, mortgage interest rates have reached 18%. There will be events/periods like those again but no one knows when.

  • Jungle 12 months ago

    How many years now has Toronto been in code red as per CMHC?

    lf you listened to them 2-3 years ago, you lost a fortune on detach and condos.

    10 million in the GTA by 2040. Vacancy rate near 1%. Rents up 30-50% in last 4-5 years alone.

    Sorry Trump, now that’s the “mother load.”

    • Buy High Sell Higher 12 months ago

      It’s really funny to hear the same rationale being used that was used for techstocks in 2000. If you didn’t buy the bubble, you missed out! The internet is going to be huge! Everyone wants to buy pet food online.

      I hope no one loses any money on Canadian real estate, but I’m standing here with a large cash position just in case you do. 😂

      PS, judging by your citation of defaults, you don’t know what you’re talking about. Even Equifax is now agreeing that defaults are at lows, which means a trend reversal is likely coming as people carry larger balances rather than pay them off.

      • Cash is King? 12 months ago

        I don’t know what’s funny to hear that you missed out…your cash is worth much less today than 5 years ago but I guess it allows you to sleep soundly at night. :p

  • Jungle 12 months ago

    The 2% stress test didn’t do anything at all to GTA. Condos went up in price. Detach remained steady.

    Recent Transunion report said non-mortgage delinquency rates are down.

    4/5 big five report delinquency rates down.

    ZOLO repoting surge in average price surge for Toronto, word is luxury is selling now and condos still on fire.

  • Functioning Brain 12 months ago

    Jungle…lol #thegreaterfool ?

  • James 12 months ago

    Higher rents are no surprise.

    Increasing interest rates =
    Higher ownership costs =
    Higher rent to offset

    Landlords are being forced to pass on increasing costs. The government and banks benefit..

Comments are closed.