Zurich/Basel, 30 May 2011 Real estate bubbles pose a substantial risk for national economies, as countries like the US, Spain, Ireland and others have recently experienced. Strong increases in home prices in Switzerland are also giving cause for concern. In many areas, residential real estate prices have more than doubled within a decade.
Is a real estate bubble developing in Switzerland too? There is no simple answer to this question, as it is generally hard to identify a real estate bubble in its early stages. That is why UBS Wealth Management Research Switzerland is launching the UBS Swiss Real Estate Bubble Index, which is designed to track the risk of a real estate bubble in the Swiss residential housing market.
Tracking current values, the UBS Swiss Real Estate Bubble Index utilizes the following risk-based level system: slump, balance, boom, risk and bubble. In the first quarter of 2011 the index value was 0.63, corresponding to the boom level.
At this level there is (currently) no elevated risk of a Switzerland-wide correction. Only when the index surpasses a value of 1 is the market considered risky. The index reached its peak in the early 1990s at a level of 2.5 at the height of the last Swiss real estate bubble.
In parallel with the UBS Swiss Real Estate Bubble Index, UBS Wealth Management Research also publishes a regional risk map showing risk and potential risk regions (known as monitoring regions). These are defined as regions that represent a substantial risk to the Swiss real estate market due to their relative macroeconomic significance and potential for a correction in regional home prices.
The selection of risk regions is directly linked to the UBS Swiss Real Estate Bubble Index. At the moment, the Zurich, Geneva and Lausanne regions are Switzerland's most risky regions as a result of their national importance. Other areas of substantial risk include the large metropolitan areas of Zug, Pfannenstil, March, Vevey, Nyon and Zimmerberg.
UBS Swiss Real Estate Bubble Index
Method
The UBS Swiss Real Estate Bubble Index is comprised of 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 proportion of credit applications for residential income property by UBS clients.
Risk regions for the Swiss real estate market
Method
The graph shows the number of standard deviations for risk regions from the median Swiss population figure and own home prices. The further to the right and to the top a region is located, the greater the risks of a price correction. Price rises over the last three years are additionally shown as a bar, with a span of 1 unit representing an annual 10 percent gain.
Regional risk map
UBS AG
Contacts:
Dr. Daniel Kalt, Chief Economist Switzerland
Tel. +41 44 234 25 60
Claudio Saputelli, Head of Wealth Management Real Estate Research
Tel. +41 44 234 39 08
Matthias Holzhey, Analyst Wealth Management 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:
The next dates of publication for the UBS Swiss Real Estate Bubble Index are August 2 and November 1, 2011. 2011 und der 1. November 2011.
