After years at the top of global housing bubble rankings, Toronto and Vancouver have cooled considerably but affordability remains a serious constraint
Toronto and Vancouver have dropped to moderate bubble-risk territory in UBS's 2026 Global Real Estate Bubble Index as sustained price declines and elevated financing costs continue to erode demand in Canada's two most expensive housing markets.
This week’s release of the 2026 iteration of the annual index assessed residential property prices across 23 major cities worldwide. Zurich and Tokyo now lead global bubble-risk rankings, with Miami, Dubai, Seoul, Geneva, and Lisbon classified as elevated-risk.
Toronto and Vancouver, which have both previously carried high bubble-risk designations, have each recorded real house price declines of approximately 10 per cent over the past year, according to UBS Global Wealth Management's Chief Investment Office.
"Higher-for-longer financing costs are likely to cap house-price gains in the near term," said Matthias Holzhey, lead author of the study and economist at UBS Global Wealth Management's Chief Investment Office.
From bubble to correction: what happened to Canadian cities
Toronto and Vancouver were among the markets most prominently flagged for elevated bubble risk in 2021.
Cities flagged with high bubble risk in 2021, like Frankfurt, Paris, Toronto, Hong Kong, and Vancouver, saw average real price drawdowns of nearly 20 per cent from their peaks as interest rates rose in subsequent years, compared with inflation-adjusted declines of about five per cent on average in cities with lower initial imbalances.
That correction has been significant in the Canadian context. Royal LePage projected in its 2026 Market Survey Forecast that aggregate home prices in the Greater Toronto Area would fall 4.5 per cent year over year to $1,054,129, while Greater Vancouver prices are expected to decline 3.5 per cent to $1,147,868 in the fourth quarter of 2026. Those projections align closely with the trajectory the UBS index is tracking.
The shift reflects a confluence of policy interventions and macroeconomic conditions. Tougher rules from new taxes to outright purchase bans to rent control measures have dimmed the appeal of once sought-after markets such as Vancouver and Toronto, according to Maciej Skoczek, author of the study and economist at UBS Global Wealth Management's Chief Investment Office.
Affordability remains a constraint despite price drops
A drop in bubble-risk classification does not mean these cities have become affordable. Across most cities analyzed, the annual ownership costs of a newly purchased 60-square-metre home - including mortgage interest and maintenance - exceed 40 per cent of a highly skilled worker's gross income.
That affordability squeeze is directly relevant to advisors who are helping clients evaluate real estate as part of a broader investment portfolio. Even with price corrections in Toronto and Vancouver, entry costs remain prohibitive for many first-time buyers, keeping rental demand elevated and sustaining the investment case for existing landlords, though with materially lower price growth expectations than in prior cycles.
The UBS report notes that demand for urban housing remained strong, as reflected in rental growth, which has generally kept pace with, and in many cases exceeded, income growth over the past five years. Ongoing supply constraints underpin this outlook.
Real estate as an inflation hedge: a more nuanced picture
One of the more pointed findings in the 2026 index relates to housing's traditional role as an inflation hedge. In over half of the cities analyzed, housing did not provide inflation protection over the last five years. Markets identified as being at high bubble risk in 2021 subsequently recorded the sharpest price declines, averaging roughly 15 per cent since then.
However, the outlook is less pessimistic on a forward-looking basis. Skoczek noted: "At current valuations, housing in most cities is nevertheless likely to provide inflation protection over the medium term."
The magnitude and persistence of the inflation shock also mattered: cities with above-average inflation experienced average real house price declines of roughly five per cent, while those with below-average inflation achieved average real annual price growth of around 10 per cent over the same period.
What this means for wealth managers
The UBS findings reinforce a message that has been building for several years: the era of near-automatic real estate appreciation in Toronto and Vancouver has passed, at least for now.
North American cities broadly saw bubble risks ease as elevated financing costs further eroded affordability and dampened housing demand - a dynamic that is unlikely to reverse sharply until the Bank of Canada provides more sustained rate relief.
The full UBS Global Real Estate Bubble Index 2026 report, including bubble-risk scores for all 23 cities analyzed, is available through UBS Global Wealth Management's Chief Investment Office.
