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UBS Swiss Real Estate Bubble Index confirms market slowdown
The UBS Swiss Real Estate Bubble Index currently stands at 1.20. It is now somewhat less likely that a speculative real estate bubble will form and burst in the coming quarters. Regional risks are increasing in medium-sized centers and peripheral agglomerations.
Zurich/Basel, 5 August 2013 – The UBS Swiss Real Estate Bubble Index remained in the risk zone in Q2 2013 and now stands at 1.20 index points. This represents a slight rise of 0.03 index points over the previous quarter. The leveling-off in the index performance confirms the widespread perception of a gradual cooling of the housing market.
Unlike the real estate bubble in the 1980s, the index is not showing any signs of acceleration. As a result, it is now somewhat less likely for the time being that a speculative real estate bubble will form and then burst in the coming quarters. In the absence of a sustained cool-down, however, the risk of a price bubble is likely to increase again in the coming quarters. This is because the market is at the peak of a price cycle that has lasted 15 years now, and overall is showing clear signs of overvaluation.
The slight rise in the index is again due to continuing price increases for residential real estate and an increase in mortgage loans with stagnating household incomes and consumer prices. Year on year, home prices have climbed 5.4% in real terms. The sharp rise has been helped, however, by the slight correction in June of last year.
The mortgage volume also increased 4.3% year on year, or CHF 29bn. On the other hand, disposable household income rose only 1.4% or around CHF 5bn. The increase in total debt is accompanied by a rise in the risks for the economy in the event of a sharp rise in interest rates.
Regional risks are increasing in medium-sized centers and peripheral agglomerations. Due to the big price rises in major cities and their direct agglomerations, those locations have made significant gains in terms of relative attractiveness in recent years. This spread the boom to those areas. This is also reflected in the geographical spread of the regions with increased risk potential: Locarno, Mutschellen, Winterthur and the Zurich Oberland and Unterland are recent entrants to the group of monitoring regions. The number of risk regions nonetheless remained unchanged in Q2 2013.
UBS Swiss Real Estate Bubble Index – second quarter 2013
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.
Regional risk map – second quarter 2013
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 7 November 2013.