Dimitri Otis Toronto and Vancouver have the 3rd and 4th largest housing bubble risks in the world, according to the latest ranking from Swiss bank UBS.

If you follow Canadian real estate news closely, you can be forgiven for being a little confused about the state of the housing market. Depending on whom you ask, Canadian markets — particularly Toronto and Vancouver — are either on the cusp of a major correction, or have achieved the hoped-for "soft landing" and will be back to rapid price growth soon enough. Count Swiss bank UBS as among the pessimists. The bank's annual Global Housing Bubble Index has ranked Toronto and Vancouver third and fourth, respectively, in a survey of housing bubble indicators. Only Hong Kong and Munich are ranked as having bigger housing bubble risks.

UBS

"Price bubbles are a regularly recurring phenomenon in property markets," the UBS report stated. "The term 'bubble' refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts." For Toronto, the third-place finish is actually an improvement from last year's first-place ranking.The slowdown in price growth over the past year and a half has reduced the city's bubble risk, slightly. Vancouver's ranking has stayed steady. UBS noted that price growth among the major cities surveyed has slowed in the past year. "The first cracks in the boom's foundation have begun appearing: house prices declined in half of last year's bubble risk cities," the report stated. Watch: The extreme measures some people take to buy a home (story continues below)