CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money

Switzerland house price crash: Swiss National Bank’s aggressive rate hikes will test market’s resilience from Zurich to Geneva and beyond

By Mensholong Lepcha

Edited by Vanessa Kintu

18:01, 25 November 2022

Traditional Swiss houses and old residential architecture in Weesen settlement on the shores of Lake Walen or Lake Walenstadt (Walensee)
Swiss National Bank’s aggressive rate hikes will test market’s resilience from Zurich to Geneva and beyond Photo: iQoncept / Shutterstock

A booming Swiss housing market was at the crossroads following the Swiss National Bank’s decision to take interest rates out of negative territory for the first time in 15 years. 

Economists have warned of formations of property bubbles in Zurich and Geneva due to “excessive dependence of housing prices on low interest rates”. Although privately-owned apartments continued to report price appreciation for the 11th quarter in a row in September 2022. 

It remains to be seen how the Swiss real estate market reacts when the effects of rising interest rates begin to take hold. 

Is a Swiss housing price crash imminent? Let’s find out below. 

What is a housing crash? 

A housing market crash is a period of sharp drop in real estate prices and activities. It is typically preceded by a housing bubble, during which property prices soar, often aided by low interest rates and speculative interests.

Housing markets have historically undergone cycles of peaks and troughs. The factors that lead to such periods of boom and bust include supply and demand, interest rate changes and government regulations, among other things.

In 2007, the US experienced a subprime mortgage crisis which was triggered by excessive borrowing at low-interest rates by under-funded borrowers. The overflowing liquidity in the market and increased property demand led to a speculative housing bubble.

As borrowers began defaulting on their mortgages, foreclosures increased, mortgage-linked securities held by banks crashed and property prices dropped. These events ultimately led to the financial crisis of 2007-2008.

What is your sentiment on USD/CHF?

0.88352
Bullish
or
Bearish
Vote to see Traders sentiment!

History of housing crashes in Switzerland

Switzerland residential house price index historical chartHistorical data on Switzerland real estate market compiled by data firm Trading Economics revealed that housing prices have trended upwards over the last 50 years.

According to the Swiss National Bank (SNB), real estate wealth in the nation has more than doubled, from CHF942bn ($995.96bn) in 2000 to CHF2.212trn in 2020.

However, there have been periods of crashes in the housing market in Switzerland, with historical data revealing a slump in the Switzerland Residential House Price index in the mid-1970s and in the 1990s.

Most notably, the collapse of the Switzerland housing market in the 1990s was mainly attributable to a Swiss banking crisis, high interest rates and weak economic growth over the decade.

The real estate crisis of the 1990s had succeeded a property boom of the 1980s that saw housing prices grow at an annual rate of more than 10%.

The Switzerland property market rebounded strongly in the 2000s due to a variety of factors, including tight housing supply, increased institutional real estate investment, higher immigration rates and rise in mortgage loans.

The introduction of a negative interest rate regime in late 2014 further fuelled a prolonged housing market boom in Switzerland. The nation’s central bank took it a step further in January 2015 as it cut interest rates in Switzerland to a record low of -0.75%.

The record low interest rates were held between January 2015 to June 2022. 

“In particular, low interest rates push up housing demand but also incentivise risk-taking behaviour by banks, by reducing the cost of leverage and weighing on bank margins and profitability,” said the SNB in a statement.

Between early 2000 and mid 2022, the real estate price index for privately-owned apartments rose over 150%.

Is a Switzerland house price crash imminent?

Switzerland price-to-rent ratio historical chart

BTC/USD

86,628.30 Price
-1.940% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 106.00

US100

21,020.00 Price
-0.230% 1D Chg, %
Long position overnight fee -0.0248%
Short position overnight fee 0.0026%
Overnight fee time 22:00 (UTC)
Spread 1.8

Gold

2,606.30 Price
+0.300% 1D Chg, %
Long position overnight fee -0.0171%
Short position overnight fee 0.0089%
Overnight fee time 22:00 (UTC)
Spread 0.30

ETH/USD

3,136.70 Price
-4.560% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 22:00 (UTC)
Spread 6.00

The latest Switzerland property news warned of a formation of a housing bubble in the Alpine nation. The residential property price index of privately-owned apartments rose for the 11th quarter in a row in the Q3 2022.

Meanwhile, the price-to-rent ratio in Switzerland increased to 126 in September 2022, data compiled by Trading Economics showed, compared to an average of 98 from 1970 to 2022.

The price-to-rent ratio is a measure of real estate valuation. The latest above average figures for Switzerland pointed to a formation of a Switzerland housing bubble. Fritz Zurbrügg, vice chairman of the Governing Board at SNB said:

“In Switzerland too, vulnerabilities in the residential real estate and mortgage markets have increased since the onset of the pandemic. First of all, numerous indicators point towards increasing overvaluations in the residential real estate market.”

The Swiss real estate market’s resilience could be tested as central banks across the world hike interest rates at an unprecedented pace to tame multi-decade high inflation.

The SNB hiked rates for the first time in 15 years in June 2022, increasing rates by 50 basis point (bps) to -0.25%. In September 2022, the Swiss central bank followed up with a 75 bps hike to take interest rates into positive territory for the first time since late 2014.

As of 25 November 2022, Switzerland interest rates stood at 0.5%.

“The property market has long been supported by one major buttress in particular: central banks. Ultra-low financing conditions and demand outpacing construction have led to increasingly optimistic price expectations among buyers. Even the most buoyant expectations have been exceeded in some cases in recent times. As a result, the imbalances have become increasingly severe,” read the UBS Global Real Estate Bubble Index report.

Zurich, Switzerland’s largest city, ranked third in the UBS Global Real Estate Bubble Index, which listed global metropolitans with housing markets that are “highly elevated” with prices “out of sync with rising interest rates”.

Only Toronto and Frankfurt ranked above Zurich in the “bubble risk zone” that included some of the biggest cities in the world, including Hong Kong, Munich, Amsterdam and Tokyo.

Geneva, Switzerland’s second-most populated city, ranked 15th on the UBS Global Real Estate Bubble Index and was ranked “overvalued”.

“For Zurich, the combination of negative interest rates and strong economic and population growth have triggered excessive price increases over the last few years. The price-to-rent ratio has reached elevated levels that are out of sync with interest rates firmly in positive territory.

“This holds for Geneva, too, although the city has lagged behind Zurich both in terms of price and population growth as people move to more affordable regions. However, the housing shortage will likely persist, as the building applications for new apartments have fallen to the lowest level in over a decade.”

Swiss housing market predictions for 2022 and beyond 

The possibility of a Swiss house price crash is largely dependent on the monetary policy of the nation’s central bank, which in turn is dependent on inflation.

The outlook of the Russia-Ukraine war is among the key events that policy makers will be monitoring to judge the course of price pressures.

The SNB will be wary of mortgage and real estate markets when framing its monetary policy, given that mortgages accounted for 95% of the total household liabilities at the end of 2020.

Economists at ING Think expected the SNB to hike rates by another 75 bps in December 2022 and could leave rates at 1.25% for the whole of 2023.

It remains to be seen how Switzerland’s housing market reacts to elevated interest rates after years of cheap liquidity.

“Munich, Hong Kong, and Tel Aviv have the highest price-to-rent ratios, followed by Frankfurt, Geneva, and Zurich. Extremely high multiples indicate an excessive dependence of housing prices on low interest rates,” warned UBS.

Final thoughts

Forecasting housing market crashes is a challenging task due to the unknowns of the future. Therefore, it is important to note that analysts and experts can be wrong in their Swiss housing market predictions.

Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence. Remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size, and goals. Keep in mind that past performance is no guarantee of future results. And never trade money that you cannot afford to lose. 

FAQ

Does Switzerland have a housing crisis?

The Swiss housing market is showing signs of a property bubble. The residential property price index of privately-owned apartments rose for the 11th quarter in a row in the third quarter of 2022. 

With the Swiss National Bank taking interest rates to positive territory for the first time in 15 years, it remains to be seen if the Swiss housing market can remain resilient.

Is there a housing bubble in Switzerland?

According to UBS, the price-to-rent ratio in Zurich and Geneva are among the highest in the world.

Is now a good time to buy a property in Switzerland?

If you are interested in investing in the Swiss real estate market it is important to conduct your own due diligence before investing. 

Forecasting housing market crashes is a challenging task due to the unknowns of the future. Therefore, it is important to note that analysts and experts can be wrong in their Swiss housing market predictions.

Keep in mind that past performance is no guarantee of future results. And never trade money that you cannot afford to lose.

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 660,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading