‘Hog Town.’ ‘Tranna.’ ‘The Big Smoke.’ 'TO.' The City of Toronto has a number of nicknames and ‘Bubble Town’ might be added to the list. The city ranked fifth in the world for being at risk of a housing bubble, according to the 2024 UBS Global Real Estate Bubble Index report, which identifies the main factors driving housing bubbles, including rampant speculation, limited housing and lowering rates. “In a housing bubble, homes are priced high above their actual value, and above incomes and rents, creating a situation where most people cannot afford the average home and, ultimately, the bubble bursts,” says Canadian Mortgage Professional (CMP). “In Toronto, though home prices remain ‘far from sustainable at prevailing interest rate levels, they have declined by around 10% year-over-year, in real terms,' according to the report." UBS described Toronto’s bubble risk as “elevated,” with the city surpassing most others due to home prices being severely disconnected from local incomes. “An elevated risk of a housing price bubble is evident in Los Angeles, Toronto, and Geneva,” the Swiss bank said in the report. "However, Toronto’s bubble risk score actually fell from the previous year, mainly because other global cities de-risked faster." The report evaluated bubble risks through five sub-indexes: price-to-income ratio, price-to-rent ratio, city-to-country price gaps, mortgage risks, and construction activity. “Toronto scored highest for bubble risk in the first two categories, price-to-income and price-to-rent ratios, where it was clear that home prices are heavily disconnected from local incomes and rents,” says CMP, adding “in other words, most residents cannot afford to buy homes based on their earnings, a hallmark of a housing bubble." According to the report, it would take an average of six years for a skilled service worker in Toronto to buy a 650-sq.-ft. apartment in the inner city, but it would take 25 years to pay for the apartment in rent payments. The report calls this phenomenon a high price-to-rent ratio, because of "an excessive appreciation of housing prices in the wake of previously low interest rates." Toronto is joined in the list's top five by Miami, Tokyo, Zurich and Los Angeles, but, globally, the risks of housing bubbles are on the decline for the second year in a row. According to the report, the decline comes after a more than 20-year national trend of strong population growth, attractive financing conditions, high investment demand, and limited supply, which gradually drove Canadian home prices up to record highs between 2002 and 2022, spurred on by record-low Bank of Canada rates. “But due to high inflation since 2022, imbalances in the national housing market have been reduced,” says CMP. Cities with scores above 1.0 are considered an elevated risk, while scores above 1.5 are high risk.In the report, Toronto's housing bubble score ticked down from 1.21 in 2023 to 1.03 in 2024, though slower rent and income growth, compared to cities like Vancouver (#10 and the only other Canadian city on the list), have kept the city in "elevated" risk territory. In Vancouver, Canada's most expensive housing market, home prices compared to income growth have not increased as much, while rents have risen sharply, says the report. The city is now considered a moderate risk of a real estate bubble. “And with interest rates on the decline again in Canada, the report predicts anticipated interest rate cuts are likely to accelerate price growth in both Toronto and Vancouver again, as ‘demand from particularly interest-sensitive first-home buyers increases,’" says CMP. “But interestingly, the report also predicts that the foreign buyers ban, increasing inventories, and a subdued economic outlook could dampen an otherwise abrupt real estate boom.”
