Toronto has topped the list of major global cities most at risk of a housing bubble with Vancouver ranking fourth, according to a new report by UBS Group AB.
It’s the first time Toronto has cracked the annual rankings compiled for the UBS Global Real Estate Bubble Index, where other top five “bubble risk” cities include Stockholm, Munich and Sydney.
The Swiss-based global financial services company says the bubble risk in all of these cities has increased significantly over the last five years where house prices have climbed by almost 50 per cent on average since 2011.
In Toronto, Munich and Sydney prices rose more than 10 per cent in the last year alone where the fear of missing out on further appreciation predominates among home buyers.
In Canada, a large part of the negative impact of higher purchase prices on affordability was cushioned by low mortgage rates.
While Toronto and Vancouver’s house prices have moved in rough lockstep where the depreciation of the Canadian dollar effectively buffered them against economic headwinds, UBS says a strengthening loonie and further interest rate hikes would “end the party” for Toronto.