A new report by Swiss-based financial services company, UBS Group AB, has named Toronto the global city most at risk of a housing bubble, beating out other major cities like London, Hong Kong, Amsterdam, and Canada’s least affordable city: Vancouver.
The UBS Global Real Estate Bubble Index tracks the risk of a housing bubble in major financial centers and ranks them on an annual basis. The index is primarily based on the rate of price growth in these cities and whether or not growth is sustainable or dangerously high.
It’s no surprise Toronto made the list, with year-over-year price growth peaking earlier this year. Vancouver on the other hand was seeing prices cool at the time the index was being calculated, which led the city being ranked the fourth highest risk, behind Stockholm and Munich.
The index has been updated with data up until the second quarter of 2017, meaning that the rating doesn’t take into account the effect new housing measures in Ontario and two interest rate increases have had on Toronto’s housing market. However, UBS believes further rate increases and a strengthening loonie will help cool the Canadian markets and lower bubble risk in both Vancouver and Toronto.
Last year, Vancouver introduced a 15% foreign buyer’s tax that significantly cooled sales in the city, but demand is already returning to pre-tax levels. In Toronto, new housing measures were also instrumental in cooling the market. Since they were introduced, prices have fallen dramatically in the city. But as long as prices and debtloads remain high, bubble risks will continue.