Garry Marr – Financial Post

Booming real estate markets are producing another kind of bubble: An expansion of authors writing about a looming crash.

Comment: Sure, the looming crash that only exists in their minds.

A forthcoming book by Hilliard MacBeth, an Edmonton-based portfolio manager, doubles-down on the so-far-errant projections of similar books. When the Bubble Bursts: Surviving the Canadian Real Estate Crash predicts Canadian house prices will drop 50%.

Comment: I am so glad he is putting it in print. I hope he offers any buyers a refund when his predicted crash doesn’t happen. Because it won’t. If it does, I will buy the entire press run of his book. Promise.

It won’t even be published until March, but doomsayers have heartily embraced it.

“It’s a hot story,” says Mr. MacBeth. “Everybody cares about it a lot because we all own houses.”

Comment: And people like you do a disservice to everyone by fanning the flames of fear and make impossible predictions. I feel bad for the people putting off buying because of people like this, only to find out that prices rose 20% in 3 years, they didn’t fall. Now the $500,000 house the liked costs $600,000 rather than $400,000. Doomsayers owe those nice people $200,000 because that is what their ill advice cost them.

Not everybody’s buying into such talk – and that includes Joe Oliver, Canada’s minister of finance, who is doing everything is his power to make sure it doesn’t happen. This past week, Mr. Oliver reiterated he does not see a bubble forming in the Canadian housing market.

Comment: Most people with a brain are not buying into it.

Mr. MacBeth said his assumptions of a correction are based on housing prices rising faster than the rate of inflation, when they should be merely keeping pace.

“Up until 2000, they just kept pace with inflation and lately they’ve gone up twice the rate of inflation. It’s the biggest deviation in the world from the long-term price trend,” says Mr. MacBeth, adding prices must drop by half to get us back to the trend line where we were in 1975.

Comment: Why should housing prices fall to 1975 levels? Car prices won’t. Incomes won’t. The cost of milk won’t. So why do w obsess about house prices rising? All prices rise, that is kind of what inflation is.

He’s hardly the first commentator to offer a stark warning about Canada’s housing market since the 2007 U.S. crash. David Madani, an economist with Capital Economics, draws a smirk from most real estate agents these days with his repeated calls for a 25% drop in prices. The call was made in February 2011. Mr. Madani has stuck with his prediction.

Comment: And prices have risen 20% since then. So prices need to fall 45% now to make his prediction come true. Uh huh.

Former journalist and cabinet minister Garth Turner, who wrote Greater Fool: The Troubled Future of Real Estate in 2008, still says the market will correct but his predictions have softened. Mr. Turner says he hadn’t factored in the record-low interest rates that plunged below 3% for five-year locked-in mortgages.

Comment: Actually Mr. Turner did the smart and honourable thing and bowed out of the real estate doom game.

Mr. MacBeth says that just because you miss it by a “year or two, that doesn’t make you wrong.” And he says the real estate cycle can sometimes take time to play out because there isn’t as much liquidity in housing as there is in, say, stocks.

Comment: Yes, it does. He has an actual date, he says Canadian house prices will fall 50% by spring or late summer 2015. So if it doesn’t happen, that makes him wrong. Mr. Madani predicted a 25% drop in Toronto house prices in Feb 2011 – in the past 3-1/2 years prices have risen by 20%. That makes him wrong. Garth Turner made a lot of negative predictions about the Toronto housing market (while going against his own words, buying selling houses for profit), all of which were wrong. ALL of the doom sayers have been wrong. Their predictions did not happen. They were NOT RIGHT. That really should be the end of it. We should not see any of their names in print anymore except to point out how WRONG they were.

Some, like Mr. Turner, maintain the correction has already begun. “In at least half the country, you have a stagnant or a declining market but the media is focused in Toronto. Calgary and Vancouver are sexy markets, we tend to think we have a universal bubble going on. We don’t. It’s a three-city story. It’s dramatic in those cities but it’s still a three-city story,” he says.

Comment: Not fair. Most of his words were aimed at Toronto. And small declines now do not make up for 10+ years of increases – opposite to his predictions.

Mr. Turner says the big three will also stagnate but he’s now saying prices will probably drop in the 15% range instead of the potential 30% decline he once predicted. “In 2008, did we know we would get five-year mortgages at 2.8%?”

Comment: Doesn’t matter. He predicted a 30% decline 6 years ago and prices rose from $366,158 to $555,890 – almost 52%. The market went 82% opposite to what he said would happen. That is REALLY wrong. So now he says Toronto, Vancouver and Calgary will drop 15%? In what time frame? Doesn’t matter, won’t happen.

On Thursday, the Real Estate Board of Greater Vancouver said house sales last month jumped 17.7% from a year ago, and 16.1% above the 10-year sales average for the month. Prices also continue to rise with the benchmark composite price for the city $633,500, a 5.3% increase from a year ago. The average detached home in the city sold for $1.26-million in September.

In Alberta, the Calgary Real Estate Board said the price of a single family home in the city rose 10.6% from a year ago to $512,800 in September.

Toronto developer Brad Lamb says the naysayer market for real estate is a constant.

“It doesn’t matter in a recession or the time of a boom, you always have these books coming out,” he says. “It’s all horses**t. They keep making all these calls every year and maybe they’ll be right in 2020 or 2022. Big surprise. Prices will fall at some point.”

Comment: Still won’t make them right.

Real estate books are a niche market, but Toronto literary agent Rick Broadhead says there can be  money to be made by weighing in on the booming market.

“There’s a viable online market for books, if you know your niche,” he said.

Comment: And bad news sells, we all know that.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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