Photo: James Bombales
While housing activity in Toronto and Vancouver has cooled considerably over the past year, both cities remain in what one investment bank considers housing bubble territory.
With home prices out of reach for many buyers in both cities, and well above their 10-year averages, UBS’ global real estate bubble index places Toronto and Vancouver in what it calls a “bubble risk.”
“Price bubbles are a regularly recurring phenomenon in property markets,” reads the report. “Bubble risk appears greatest in Hong Kong, Munich, Toronto, Vancouver, London and Amsterdam.”
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The index tracks the median home price-to-income ratio of cities around the world. Cities with a ratio of 1.5 or more fall into “bubble risk” territory, while those with ratios between -0.5 to 0.5 are considered “fair-valued.” Currently, Vancouver sits at 1.92, while Toronto comes in at 1.95.
“Vancouver, whose house prices accelerated to a double-digit rate relative to last year, has a ballooning index score,” reads the report. “Higher stamp duties for foreign investors proved futile in braking its boom.”
But that doesn’t mean nothing could — the report points out several potential situations that could pump the breaks on Vancouver’s climbing prices.
“Rising rates, stricter market regulations or an economic downturn could turn the lights out on the party given the high valuations and strained affordability,” reads the report.
It also notes that Toronto’s price dynamics have slowed considerably over the last year, after the introduction of the Ontario government’s Fair Housing Plan in the spring of 2017.
“Since the waning of the housing frenzy in the middle of last year, prices have stabilized over the past four quarters,” it reads. “Higher mortgage costs and tighter lending standards should limit the upside for the time being. But a short-term weakening of the Canadian dollar may again attract foreign buyers.”