"Finally under pressure": Vancouver housing market seeing highly elevated bubble risk

According to a new global real estate report, Vancouver doesn’t have the world’s largest housing bubble. Vancouver doesn’t even have Canada’s largest housing bubble.

That title goes to Toronto, which has the largest housing bubble in Canada and the world. But Vancouver sees highly elevated bubble risk.

This data comes from Switzerland-based UBS Insights, which claims that Vancouver has the sixth-largest housing bubble in the world.

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Some of the report’s key findings include an analysis of the pace at which housing prices are increasing, imbalances in the market, rental rates, and affordability.

What’s a bubble?

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A housing bubble, by definition, is the sustained mispricing of homes, often resulting from high demand and low supply — something Vancouver has experienced for many months now. However, the actual existence of a bubble cannot be concretely proven until it bursts, UBS says.

The UBS Global Real Estate Bubble Index looks at the risks of property bubbles.

“The index does not predict when a correction will set in. A change in macroeconomic momentum, a shift in investor sentiment, or a major supply increase could trigger a decline in housing prices.”

UBS Insights

Cities that place between 0.5 and 1.5 on the Index are overvalued, while anything over 1.5 represents a bubble risk. Vancouver scored a 1.7.

How Vancouver compares

Compared to 2021, Vancouver stayed relatively flat when looking at the Global Real Estate Bubble Index about Vancouver’s bubble risk. However, as you can see, Toronto, several European locales, and Hong Kong surpass Vancouver when looking at housing bubble risk globally.

Last year, Vancouver also ranked sixth, although the bubble risk was 1.66, which increased slightly this year.

“Imbalances in global metropolitan housing markets are highly elevated, and prices are out of sync with rising interest rates,” reads the UBS report.

“On top of this, an acceleration in the growth of outstanding mortgages was evident in virtually all cities, and for the second year in a row, household debt grew significantly faster than the long-term average. The lending boom was conspicuously strong in the Middle East, the US, Canada, and Australia.”

While places like Toronto and Frankfurt have topped the list this year, UBS says there’s an elevated risk in Vancouver.

UBS also looked at the number of years it would take a skilled service worker to be able to buy a flat near the city centre. In Vancouver? It would take nearly 10 years.

UBS Insights

Rent is up

UBS says rent is up in every city it analyzed except Tokyo, Japan.

“On average, rents in all cities rose by virtually the same pace as in pre-pandemic years — a clear sign that the urbanization trend has not slowed down.”

Despite the woes of Vancouver renters, rent increases were most pronounced in US cities and places like Dubai and Singapore.

Game over?

The forecast for Canada’s housing market is ominous.

UBS says that the global owner-occupied housing boom is “finally under pressure” and that “significant price corrections” are expected in the coming quarters.

“In such overheated markets, with already very stretched housing affordability, the recent rate hikes by the Bank of Canada could be the last straw that broke the camel’s back. New buyers and owners during mortgage renegotiations not only need to pay higher interest rates but are also required to provide more income to qualify for a mortgage. Price correction is already in the making.”

With files from Zoe Demarco