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UBS Real Estate Bubble Index is heading towards the risk zone
The UBS Swiss Real Estate Bubble Index reached 0.95 index points in the first quarter of 2012, registering just below the risk zone. Given current trends, however, we expect the Real Estate Bubble Index to enter the risk zone in the present quarter. Saanen-Obersimmental, Unteres Baselbiet and Limmattal have joined the ranks of exposed regions.
Zurich/Basel, 3 May 2012 – The quarterly UBS Swiss Real Estate Bubble Index has reached 0.95 points, an increase of 0.15 index points since the last quarter. This puts the index just outside the risk zone (greater than 1). If current trends continue, it should cross the threshold as early as already in the present quarter.
The main reasons for the Real Estate Bubble Index's latest rapid rise are year-on-year increases in home prices: +6.3 percent for condominiums and +4.6 percent for single-family homes according to the SNB, and continued steep growth in mortgage debt, combined with the ongoing flight to real estate as an investment.
Prices for mid-range homes have risen over 21 percent in real terms over the last four years. An analysis of the 1980s shows a similar increase between 1984 and 1988. The subsequent two years saw even steeper price hikes in Switzerland – a typical symptom of an intensifying real estate bubble. Despite unabated demand, we do not currently expect development of this kind. There is, however, a substantial risk that prices will continue to rise at this pace for a few more years, resulting in an even longer bust when prices return to fundamentally more justified levels.
The economic regions of Saanen-Obersimmental, Unteres Baselbiet and Limmattal are now classified as exposed regions. In other words, the number of regions with a substantial risk of a regional home price correction is increasing again. Exposed regions now contain around 26 percent of the total Swiss population. The monitoring regions – those with an increased risk – now include Nidwalden in addition to Basel-Stadt, Knonaueramt and Glattal-Furttal.
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 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 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.
As the UBS Swiss Real Estate Bubble Index has risen, so has the number of exposed regions: Saanen, Limmattal and Unteres Baselbiet have been added to this group. The Zurich, Geneva and Lausanne population mobility regions remain Switzerland's riskiest as a result of their national importance. Other exposed regions include the large metropolitan areas of Zug, Pfannenstiel, Zimmerberg, March, Vevey, Morges and Nyon as well as the tourist regions of Davos and Oberengadin. Nidwalden is a recent entrant to the group of monitoring regions. This category also includes Basel-Stadt, Knonaueramt and the Glattal-Furttal region.
Regional risk map: 1st Quarter 2012
Claudio Saputelli, Head of WM Real Estate & Swiss Regional Research
Tel. +41 79 513 50 45
Dr. Matthias Holzhey, Economist WM Real Estate & Swiss Regional 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 August 3, 2012.