UBS: Toronto housing bubble is one of the worst in Canada

Canadians are well aware that the Toronto housing bubble is among the worst in the country, and it turns out that it is also among the worst in the globe.

When compared to 24 other large cities, Toronto was deemed to have the second-riskiest housing bubble in the world, according to a recent analysis from UBS Wealth Management. Only Frankfurt, Germany, was ranked higher than Toronto, which was ahead of places such as Hong Kong and Vancouver, which was assessed to have the sixth most hazardous bubble.

Much of that rise occurred in the last year, with prices in the city rising about 8% from mid-2020 to mid-2021. Interest rates on mortgage loans fell to historic lows during this time, encouraging many aspiring homeowners to enter the market.

A housing bubble is defined as a long-term undervaluation of properties, which is often the result of high demand and insufficient supply, as Toronto has been experiencing for several months. However, according to UBS, the existence of a bubble cannot be confirmed until it bursts.

The rating does not predict whether or not a bubble will collapse, but rather assesses the danger of a bubble bursting based on patterns such as excessive lending, the decoupling of property values from local income levels, and economic imbalances.

“Over the last ten years, the real price level has almost doubled amid strong population growth and falling mortgage rates… The high price levels are increasingly dependent on low interest rates,” states the report. “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. This, in turn, could lead to an abrupt end to the current housing frenzy.”

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