T
oronto remains at elevated risk of a real estate bubble, according to a UBS ranking that puts it fifth on its global index. The city's housing market cooled down during the correction brought on by soaring inflation and interest rates, but Toronto still shows signs of being overpriced. In 2023, Toronto had a score of 1.21 on the UBS Global Real Estate Bubble Index, indicating an elevated risk, which fell to 1.03 in 2024. However, slower growth in incomes and rents kept it at high risk.
The index defines a bubble as substantial and sustained mis-pricing of an asset, characterized by a decoupling of prices from local incomes and rents, and imbalances in the real economy such as excessive lending and construction activity. Cities with scores above 1.0 are considered an elevated risk, while scores above 1.5 are high risk.
Vancouver, Canada's most expensive housing market, is now considered at moderate risk of a real estate bubble, according to UBS. Home prices in Vancouver have not increased as much compared to income growth, but rents have risen sharply. Globally, cities that were at greatest risk of real estate bubbles before interest rates began to climb saw the biggest corrections in prices.
The report expects interest rate cuts by the Bank of Canada will fire up home price growth again in Toronto and other cities, but notes that factors such as a ban on foreign buyers, rising inventories, and a subdued economic outlook argue against a quick resurgence of the real estate boom. Miami tops the UBS index with a score of 1.79, followed by Zurich, which has seen the strongest price growth of all European cities.
Canada's labour market has cooled significantly this year, but without public sector hiring it would have been much worse, according to National Bank economists. Job creation for the private sector rose just 0.2 per cent in the first eight months of the year, while the labour force grew by 2 per cent.
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