Real estate bubble index slightly lower again in the third quarter
Published: Wednesday, Nov 8th 2023, 08:50
Updated At: Thursday, Nov 9th 2023, 00:54
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The risk of a bubble on the Swiss owner-occupied housing market decreased again slightly in the third quarter of 2023. However, this was not due to falling prices, but in particular to rising rents.
The UBS Swiss Real Estate Bubble Index fell to 1.41 points (from 1.43) in the third quarter of 2023, as the major bank announced on Wednesday. However, this means that the real estate market remains overvalued relative to its historical development.
At 0.7%, the price increase for residential property in the third quarter was comparable to previous quarters. Meanwhile, according to UBS, asking rents soared by 2.8%. As a result, the price-to-rent ratio fell significantly.
In its risk assessment, the bank points out that the index is still significantly lower than during the real estate bubble at the beginning of the 1990s. However, the index has risen significantly since mid-2020 and currently suggests a clear overvaluation of the owner-occupied housing market. The market is particularly overheated on Lake Zurich, in parts of Graubünden, in the St. Gallen Rhine Valley and in the Lausanne region.
Rising prices in a stagnating economy
According to the experts, robustly rising home prices have been met with a stagnating economy. As a result, the ratio of home prices to income and consumer prices has continued to climb. In addition, the rise in the debt ratio has also contributed somewhat more to the risks on the home ownership market despite a slowdown in mortgage growth.
Due to the higher financing costs, the growth in outstanding mortgages has now almost fallen to the low point of the 1990s. However, an overall low and further decline in new construction activity makes a significant price correction unlikely in the near future. Overall, however, there are signs of falling demand for owner-occupied homes. In addition, the imbalances on the market are likely to decrease in the medium term due to rising rents.
The UBS Swiss Real Estate Bubble Index is made up of six standardized sub-indices. These are home prices in relation to annual rents, consumer prices, household income and mortgage volume in relation to household income, construction activity in relation to gross domestic product and the demand for loan applications for investment properties.gross domestic product and the demand for loan applications for investment properties.
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