Toronto is making global headlines this week after receiving the not-so-coveted number two spot of the world’s worst real estate bubbles. Another major Canadian city, Vancouver, is among the top ten. This news comes among calls from many other sources that the real estate market may be on course for a correction in the near future.
The UBS Global Real Estate Bubble Index is a yearly report that analyses residential property prices in 25 major cities around the world. The report acknowledges that a bubble can only be proved to exist after it has popped, and that they can not claim any knowledge of when such a correction could come. Rather it tracks the factors that most indicate a possible bubble and the factors that put a city most at risk.
This year’s report cites already poor affordability worsened by the pandemic and rapid growth in housing prices as major factors in the high scores of cities around the world.
Toronto’s high placing this year is not unprecedented. Last year Toronto placed third, the year before that the city was second once again. In 2017, Toronto topped the list with Vancouver at number four. In previous years, Vancouver has hovered in the top ten, reaching as high as fourth place. Other major Canadian cities have not appeared on the list.
As of yet, no bubble has popped despite our city’s strong showing.
That doesn’t mean we should disregard the warning signs, however, as many institutions are now raising concern at current market conditions. The International Money Fund also reported this week on the high possibility of a major price correction. The US Federal Reserve revealed that Canada’s home prices are rising faster than any other G7 country. Even the Canadian Mortgage and Housing Corporation lists most major cities including Toronto, Vancouver, and Ottawa as at risk for major market vulnerability.
With so many signs pointing downwards, many are on edge waiting for some kind of apocalyptic event. This feeling may be just slightly unfounded. While a correction seems imminent now, the scale and pace of such a correction is hard to predict. With many now raising the alarms, and governments continuing to take measures against catastrophe, the future may not be as gloomy as it seems.