Posthaste: Toronto ranks fifth in the world for risks of real estate bubble

Only Miami, Tokyo, Zurich and Los Angeles are running hotter, according to UBS ranking

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Canada’s housing market released a lot of steam during the correction brought on by soaring inflation and interest rates, but one city remains at risk of running hot, according to a global index.

During the heady housing boom coming out of the pandemic, risks of real estate bubbles rose to record highs in cities around the world, including  Canadian centres.

That risk has faded over the past two years as inflation and higher interest rates contributed to a decline in home prices.

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Of 16 cities worldwide considered at high or elevated risk last year on the UBS Global Real Estate Bubble Index, only six remain this year — and Toronto ranks fifth on the list.

The index defines a bubble as substantial and sustained mis-pricing of an asset. Typical signs of this imbalance are a decoupling of prices from local incomes and rents and imbalances in the real economy, such as excessive lending and construction activity, said UBS.

Cities with scores above 1.0 are considered an elevated risk, while scores above 1.5 are high risk.

Toronto’s score fell from 1.21 in 2023 to 1.03 in 2024, but slower growth in incomes and rents kept it at elevated risk.

In Vancouver, on the other hand, Canada’s most expensive housing market, home prices compared to income growth have not increased as much, while rents have risen sharply, says UBS. It is now considered at moderate risk of a real estate bubble.

Globally, the cities at greatest risk of real estate bubbles in 2022 before interest rates began to climb saw the biggest corrections in prices, said the report.

“Vancouver, Toronto and Amsterdam recorded significant prices declines of around 10 per cent in real terms,” it said.

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UBS expects that interest rate cuts by the Bank of Canada will fire up home price growth again in these cities, but “the ban on foreign buyers, rising inventories and a subdued economic outlook argue against a quick resurgence of the real estate boom.”

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UBS

For bubble risk, Canadian cities are in better shape than Miami, which tops the UBS index with a score of 1.79. Prices in this Florida city have risen by almost 50 per cent since the end of 2019, 7 per cent of which were in the last four quarters, said the report.

The warm climate, ocean view and no personal income tax has made Miami attractive to many wealthy newcomers who are competing for the few high-end properties by the seaside.

Also high on the list is Zurich, which has seen the strongest price growth of all European cities. Prices here are 20 per cent higher than before the pandemic and despite steeper mortgage rates there has been no correction.

The share of people who own homes is declining and housing in Switzerland’s largest city is likely to become even more expensive because of the region’s strong employment and high population growth, said UBS.

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National Bank of Canada

Canada’s labour market has cooled significantly this year, but without public sector hiring it would have been much worse, today’s charts show.

Job creation for the private sector in the first eight months of this year rose just 0.2 per cent, while the labour force grew by 2 per cent.

“Such a gap (1.8 percentage points) has never been seen outside a recession,” said National Bank economists Matthieu Arseneau and Alexandra Ducharme.

The job vacancy rate for the public sector is now at its lowest since 2016.

  • Today’s Data: Canada manufacturing sales, existing home sales, United States empire manufacturing

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Financial Post

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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