UBS Real Estate Bubble Index: market in the risk zone
The UBS Swiss Real Estate Bubble Index entered the risk zone in 3Q 2012 and now stands at 1.02 index points. This sharp increase of 0.20 points reflects a further intensification of the imbalances on the housing market.
Zurich/Basel, 5 November 2012 – The UBS Swiss Real Estate Bubble Index currently stands at 1.02 and has therefore entered the risk zone for the first time since the real estate bubble of the 1990s. This corresponds to a sharp rise of 0.20 index points on the previous quarter. As expected, the slight correction last quarter proved not to be a trend reversal. Although the index only just exceeded the risk zone threshold, further price rises should increasingly be seen as overvaluation.
The index rise into the risk zone reflects the continued increase in imbalances on the Swiss housing market. The consumer price index is another 0.2 percent lower than in June of this year and personal income showed hardly any growth. Declining consumer prices and stagnating income, however, do not form a basis for sustained real estate price increases.
Although population growth continues to favor price increases, the high price level is increasingly being supported by the demand for real estate as an investment as well as by low interest rates. The continued strong increase in household mortgage debt is showing no signs of abatement. This represents a dangerous trend, as both drivers could easily be thrown into reverse and therefore trigger a price correction.
In many exposed regions the situation continued escalating in the last six months. For instance, Davos recorded a price increase of 7.6 percent, Zug 5.1 percent and Zurich and Lausanne a still very high 3.8 percent within six months. The situation in Geneva has de-escalated slightly with an increase of 1.8 percent, although this is still significant given the high price level. As a result of the rising UBS Swiss Real Estate Bubble Index we have reassigned the economic regions of Saanen-Obersimmental and Unteres Baselbiet as exposed regions and are extending the monitoring regions (regions with increased risk potential) to include Nidwalden and Innerschwyz.
UBS Swiss Real Estate Bubble Index
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.
Selecting exposed and monitoring regions
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.
The number of exposed and monitoring regions grew in 3Q 2012. Unteres Baselbiet and Saanen-Obersimmental have been reassigned as exposed regions. Nidwalden and Innerschwyz have also joined the ranks of the monitoring regions. Determining factors for the increase were new price and population data as well as the sharp rise in the UBS Swiss Real Estate Bubble Index. Furthermore, the population mobility regions of Zurich, Geneva and Lausanne remain among Switzerland's riskiest due to their national importance. Other exposed regions include the large metropolitan areas of Zug, Pfannenstiel, Limmattal, Zimmerberg, March, Vevey, Morges and Nyon as well as the tourist regions of Davos and Oberengadin. Alongside Nidwalden and Innerschwyz, Basel-Stadt, Knonaueramt and the Glattal-Furttal region fall into the category of monitoring regions.
Regional risk map: 3rd Quarter 2012
Claudio Saputelli, Head of CIO WM Swiss & Global Real Estate Research
Tel. +41 79 513 50 45
Dr. Matthias Holzhey, Economist CIO WM Swiss & Global Real Estate Research
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 4 February 2012.