Global wealth manager says Toronto, Vancouver at risk of a bubble
A global index of housing markets in major financial centres puts two Canadian cities at risk of a bubble.
The Real Estate Bubble Index from UBS Global Wealth Management says that Toronto and Vancouver have the dubious claim to be among just 6 cities that is considers risky.
Canada’s hottest housing markets sit between Hong Kong and Munich; and Amsterdam and London; and are the only two financial centres in North America to be flagged.
While the report notes that values in Toronto have decreased in the past year, Vancouver values have risen.
Elsewhere in North America, San Francisco, Los Angeles, and New York are considered overvalued but not a bubble-risk.
Different from last time
Mark Haefele, Chief Investment Officer at UBS Global Wealth Management says that conditions are different from the last financial crisis with its simultaneous overbuilding and over-lending coupled with a sharp rise in mortgage debt.
"Although many financial centres remain at risk of a housing bubble, we should not compare today's situation with pre-crisis conditions," he said. "Nevertheless, investors should remain selective within housing markets in bubble risk territory such as Hong Kong, Toronto, and London."
Warning to investors
While six financial centres are a bubble-risk, the wealth manager is sounding a wider cautionary note.
"The median total return on housing in the most important developed market financial centers was 10% annually over the past five years, accounting for an imputed rental income and book profits from rising prices," said Claudio Saputelli, Head of Real Estate at UBS Global Wealth Management's Chief Investment Office. "How appealing returns will be in the next few years is questionable. We recommend caution when buying residential real estate in most of the biggest developed market cities."
