Swiss Bank UBS Says Toronto Has North America's Biggest Housing Bubble

Swiss bank UBS has sounded the alarm on Toronto's housing market, saying it is in one of the biggest bubbles in the world.

In fact, UBS has concluded that homes in Toronto are more overpriced based on local rents and incomes than in other major cities such as New York, San Francisco, London and Hong Kong.

In an annual ranking, UBS looks at 25 major cities in Europe, North America, the Middle East and Asia to track and compare the risk of housing bubbles at the local level, and it then assigns them a number based on that ranking. A score above 1.5 indicates the bank thinks there's a risk of a bubble, which UBS defines as "a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts."

A score of between 0.5 and 1.5 suggests the market is merely overvalued, while a score of below 0.5 to -0.5 suggests houses are fairly valued. Anything below that implies the city is undervalued based on local incomes, demand for housing and other factors.

Toronto scored 1.96 on the UBS index, behind only the German cities of Munich at 2.35 and Frankfurt at 2.26. No other North American city was deemed to be in bubble territory by UBS, including Vancouver, New York, Los Angeles, Boston, Chicago and San Francisco.

This is the third year in a row that Toronto has been deemed to be in a bubble, after scoring 1.95 in 2018 and 1.86 in 2019 on the UBS index. Based on local salaries, UBS calculates that it would take a skilled service worker seven years worth of earnings to afford a 650-square-foot home near downtown Toronto.