Swiss Home Prices Are Approaching Level of 1989 Bubble, UBS Says

By Corinne Gretler, BLOOMBERG,  Jan 21, 2014 4:01 AM PT

Prices in Switzerland’s booming housing market are approaching a level last reached in 1989, shortly before a slump in values that hurt the economy for years, UBS AG said.

Residential-property values are about 5 percent lower than the market’s peak when adjusted for inflation, the Swiss bank said in a report today. Even so, price increases slowed to less than the 10-year average in 2013 because of rising long-term interest rates and tougher mortgage-lending standards, UBS said.

“Despite slower momentum, valuations in the Swiss owner-occupied housing market have reached a high,” UBS economists Claudio Saputelli said at a briefing in Zurich today. “This has further increased the risk of a correction.”

The Swiss National Bank has sounded the alarm about the property market overheating in a bid to prevent a repeat of the real estate crisis of the 1990s. The UBS Swiss Real Estate Bubble Index rose to 1.20 points in the third quarter from a revised 1.15 points in the second, according to the most recent report in November. A reading above 2 would indicate a bubble.

“We’ve been in a risk zone for more than a year,” Saputelli said. Still, prices are rising more slowly than they did in the 1990s, he said.

The average price growth for condos was 3.5 percent last year, while single-family-home values climbed 4.5 percent, UBS said in its report.

Capital Buffer

The SNB has warned about an increase in risks in the country’s real estate market as record-low borrowing costs lifted demand and fueled inflation. the central bank initiated a capital buffer for banks that was introduced by the government in February 2013.

The buffer, which banks have had to comply with since Sept. 30, currently is set at 1 percent of risk-weighted assets tied to residential mortgages to guard against losses on loans. At the behest of the SNB, the government can raise it to as much as 2.5 percent.

According to Bloomberg’s monthly economic survey published today, 71 percent of economists expect the buffer to be raised, and more than half of those predicting an increase see that happening before the end of March. The median estimate is for the measure to be boosted to 2 percent.

UBS is due to publish the next bubble-index report on Feb. 5.


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