Housing bubble index stable

The UBS Swiss Real Estate Bubble Index remained practically unchanged in the third quarter at 1.38. Stagnant nominal owner-occupied home prices and declining investment demand for condominiums kept it in check.

Zurich, 4 November 2015 – The UBS Swiss Real Estate Bubble Index remained in the risk zone in the third quarter 2015 but moved only marginally quarter on quarter, up 0.01 point to 1.38. Stagnating nominal owner-occupied home prices and declining investment demand for condominiums kept it flat. Third-quarter mortgage loan volume however continued to rise relatively strong, up 3.4% year on year. Relative to incomes, growth remains well above the long-term average.

Stagnant owner-occupied home prices signal that the market is calming down, but in view of current negative inflation and nominal household income falling 0.3% (measured in terms of economic output), the imbalances have not yet narrowed. Adjusted for inflation (or the lack of it), owner-occupied home prices have still risen 3.1% year on year.

Declining rents in the third quarter contributed to a slight deterioration in the buy/rent ratio as well. Times will likely be getting more difficult for landlords. The rise in rental apartment vacancies to 1.8% reflects a slowdown in the take up of rental properties in many areas of Switzerland's German-speaking Central Plateau region. At the same time raising rents for new buildings in an environment of falling consumer prices are near-impossible.

In general, the positive effect of negative interest rates on owner-occupied home demand appears to be fading. Annual growth rates in prices and mortgage debt are back at the previous year's level. In addition, UBS mortgage loan applications for owner-occupied homes to rent declined to 18.7% from the all-time-high of nearly 20% in the first quarter. Financial market volatility and the recent lows in 10-year Swiss government bond yields are unlikely to boost the owner-occupied home market. The economy's present sluggishness, which is unfavorable for real estate, is expected to have a greater impact on market data over the next few quarters. 

Methodology
Depending on its current value, the index falls into one of the following risk categories: slump, balance, boom, risk and bubble. These categories are specifically defined and ranked in order of risk. The UBS Swiss Real Estate Bubble Index comprises six sub-indices that track: the relationship between purchase and rental prices, the relationship between house prices and household income, the development of house prices relative to inflation, the relationship between mortgage debt and income, the relationship between construction and gross domestic product (GDP), and the ratio of loan applications filed for intended rental properties to total loan applications filed by UBS private clients.

Our selection of exposed regions is tied to the level of the UBS Swiss Real Estate Bubble Index and is based on a multi-level selection process utilizing regional population and property price data.

UBS Switzerland AG

Contacts

Claudio Saputelli, Head Swiss & Global Real Estate, Chief Investment Office WM
Tel. +41-79-513 50 45

Dr. Matthias Holzhey, Head Swiss Real Estate Investments, Chief Investment Office WM
Tel. +41-44-234 71 25

The UBS Swiss Real Estate Bubble Index report is available on the Internet via this link: www.ubs.com/swissrealestatebubbleindex-en.

The next date of publication for the UBS Swiss Real Estate Bubble Index is 2 February 2016.

www.ubs.com