Swiss real estate market UBS Swiss Real Estate Bubble Index Q1 2017

UBS Swiss Real Estate Bubble Index

The UBS Swiss Real Estate Bubble Index remained in the risk zone at 1.39 points in the first quarter of 2017 following a moderate increase. The increase in home prices outpaced the increase in rents and income. Demand for buy-to-let investments also rose, in spite of heightened market risks.

Switzerland UBS Real Estate Bubble Index

Source: static-ubs.com - Click to enlarge

Sub-indices of the UBS Swiss Real Estate Bubble Index

Owner-occupied house prices relative to annual rents

• An above-average buy-to-rent ratio indicates a high dependency on sustained low interest rates or implies expectations of future price increases.
• The long-term average is 26.1 annual rents. In March 1989, the indicator peaked at 29.3.
• In Q1 2017, it took 29.6 annual rents to purchase a comparable home – a new indicator high. The indicator thus increased a tenth quarter in a row.

Switzerland Home Prices Relative to Annual Rent

Source: static-ubs.com - Click to enlarge

Owner-occupied house prices relative to household income

• The indicator shows whether the price behavior of the owner-occupied housing market is supported by changes in household income. A decoupling of prices from average household income can be interpreted as a sign of interest rate risks.
• In terms of a long-term average, it takes 5.3 annual incomes to purchase an owner-occupied home in the medium price segment.
• In Q1 2017, it took around 6.4 annual household incomes to purchase an owner-occupied home in the medium price segment. Compared to the previous quarter, the index rose slightly.

Switzerland Home Prices Relative to Household Income

Source: static-ubs.com - Click to enlarge

Owner-occupied home prices relative to consumer prices

• In the long term, owner-occupied housing prices are likely to be oriented towards the development of construction costs and general inflation. A sharp and lasting increase in inflation-adjusted owneroccupied housing prices is thus a warning signal for a possible correction.
• After adjustment for inflation, owner-occupied housing prices are now barely above the high of 1989.
• The inflation rate stood at 0.6 percent in the first quarter of 2017. As a result, home prices declined marginally, when adjusted for inflation. Year-on-year, however, a nominal rise of 1.2 percent was recorded.

Switzerland Home Prices Relative to Consumer Prices

Source: static-ubs.com - Click to enlarge