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UBS Real Estate Market Study
Price developments on the real estate market
Development of real estate prices in Switzerland: What are the forecasts for the real estate market? Which factors are decisive?
Content:
Content:
- Review: Home prices rose by 0.4 percent in the 2nd quarter of 2024 compared to the previous quarter.
- The Swiss Real Estate Bubble Index: The UBS Swiss Real Estate Bubble Index continued to drop in the second quarter of 2024 and currently stands at 0.74 index points.
- Outlook: We expect prices for owner-occupied homes to continue to rise over the next few months.
- Risk map: The analysis shows a bubble risk in the major centres and tourist regions of Graubünden.
Owner-occupied housing prices recorded an increase of 0.4% in the second quarter of 2024, which is the lowest quarter over quarter rise in prices since the beginning of 2019. Year over year, this meant that owner-occupied homes increased in price by 2.7%. Adjusted for inflation, prices were 1.4% higher than in the summer of 2023.
By contrast, rents continued to rise at a brisk pace. In the second quarter of 2024 quoted rents went up by 1.2%, making them 6.4% higher than they were a year before.
Existing rents also recorded an above-average year over year increase of 2.7%.
UBS Swiss Real Estate Bubble Index in the 2nd quarter of 2024: moderate
UBS Swiss Real Estate Bubble Index in the 2nd quarter of 2024: moderate
The UBS Swiss Real Estate Bubble Index continued to drop in the second quarter of 2024 and currently stands at 0.74 index points. This means that the risk of a real estate bubble is classed as “moderate”. However, the index is significantly lower than it was during the real estate bubble in the early 1990s.
Nonetheless, the analysis shows that the risk of a real estate bubble remains high with regard to the fundamental factors of rents and incomes. However, the risk of overheating has decreased with weaker price momentum. Falling interest rates and the moderate level of relative occupancy costs do not make for a price correction. Low demand for mortgages overall and a continued contraction in the number of new properties being built also clearly work against a price bubble.
What is the UBS Real Estate Bubble Index and how is it calculated?
What is the UBS Real Estate Bubble Index and how is it calculated?
The UBS Swiss Real Estate Bubble Index shows the risk of a real estate bubble – a significant overvaluation of real estate and the likelihood of an imminent price drop – on the Swiss real estate market. UBS economists use a model with different subindices to calculate the bubble index:
- price-to-rent and price-to-income ratios (foundation)
- real rate of price change over three and 10 years (dynamics)
- cost comparison of purchase and rent (cost)
- mortgage volume-to-income and residential construction (environment)
Depending on the current index value, the real estate bubble risk is divided into the following four categories:
- low (below 0)
- moderate (between 0 and 1)
- elevated (between 1 and 2)
- acute (above 2)
What is the forecast for the development of the real estate market in Switzerland?
What is the forecast for the development of the real estate market in Switzerland?
We expect prices for owner-occupied homes to continue to rise over the next few months. Overall, owneroccupied properties are likely to rise in price this year by about 2%. Next year, we expect price momentum to pick up. Besides falling mortgage interest rates, the sharp rise in rents will also have a positive impact on demand in the market for owner-occupied homes.
The map shows price developments over the last five years for all 106 Swiss economic regions, as well as an indication of regional risk based on the development of the price-to-income and price-to-rent ratios.
- The price-to-income ratio has deteriorated markedly since the beginning of 2019, primarily in the cities of Zurich, Lausanne, and Geneva. In the regions around Lake Geneva, this also applies to the price-to-rent ratio.
- Apart from the Limmat Valley region, there was no very high increase in imbalances in the primary home markets in German-speaking Switzerland. This is because the ratio of purchase prices to rents has risen at a below-average rate practically across the board. Zug is the exception here, but also has the strongest price growth rate.
- A sharp increase in imbalances is evident as a result of the second-home boom in the tourism region of Graubünden.
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