toronto housing bubble

Toronto was just ranked the second-biggest housing bubble in the world

After a short-lived stint in third place on the widely-respected UBS Global Real Estate Bubble Index, Toronto has once again overtaken Munich to reclaim its spot as the second-riskiest urban housing market on earth.

Yay? Nay.

"Over the last ten years, in Toronto the real price level has almost doubled amid strong population growth and falling mortgage rates," reads the Swiss wealth management firm's recently-released 2021 bubble report.

"After the introduction of restrictive regulations (e.g., a foreign-buyers' tax and rent controls), the market took a breather in 2017 and 2018, only to reaccelerate in 2020."

According to the bank, home prices have increased consistently over the past four quarters in Toronto, rising by almost eight per cent between mid-2020 and mid-2021.

UBS says that skyrocketing house values have become increasingly dependent on low interest rates in Canada's most populous city, where buyers have been taking advantage of historically cheap mortgage loans "to finance purchases in an environment of higher prices."

So what happens when mortgage rates go up?

Analysts say that the Bank of Canada is "expected to taper in 2022, well ahead of the Federal Reserve," which would likely raise mortgage rates and could discourage future foreign real estate investments.

"This, in turn," say analysts, "could lead to an abrupt end to the current housing frenzy."

In other words, the bubble would pop, delivering a serious blow to homeowners who are already stretched to the max financially.

"Increasingly stretched affordability — according to the National Bank of Canada, buyers in Toronto require the highest income in the country to qualify for a mortgage — poses a challenge, as stress test rules have recently been tightened again," explains the report.

And Toronto isn't alone — Vancouver also moved up the list between 2020 and 2021, going from the "yellow" zone (overvalued) to red (bubble risk), coming in at spot number six this year.

"Between 2000 and 2017, real home prices in Vancouver and Toronto rose almost unabated by more than 5 per cent per year on average in an ascent that was driven by falling mortgage rates, urbanization, and international demand," UBS reiterated.

"Stretched affordability, tighter mortgage stress test requirements, and an expected tightening of monetary policy by the Bank of Canada will challenge price levels in the coming quarters."

As the Canada Mortgage and Housing Corporation (CMHC) recently warned, Toronto's hot, hot housing market could be in for a rude awakening as pandemic restrictions lift, and life goes back to normal.

Here's the full list of cities appearing on UBS' Global Real Estate Bubble Index for 2021, from riskiest to least risky housing market:

  1. Frankfurt
  2. Toronto
  3. Hong Kong
  4. Munich
  5. Zurich
  6. Vancouver
  7. Stockholm
  8. Paris
  9. Amsterdam
  10. Tokyo
  11. Sydney
  12. Miami
  13. Los Angeles
  14. Geneva
  15. London
  16. Moscow
  17. Tel Aviv
  18. San Francisco
  19. Boston
  20. New York
  21. Singapore
  22. Madrid
  23. Milan
  24. Warsaw
  25. Dubai
Lead photo by

Clement Lo

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