A portfolio manager at Richardson GMP Ltd. in Edmonton, Hilliard MacBeth has seen his clients become more and more enthralled with real estate. “Obsessed is not too strong a word,” he said in a video interview with the Globe and Mail about his upcoming book, “When the Bubble Bursts: surviving the Canadian real estate crash.”
MacBeth, who has more than 35 years of financial experience, is one of the many market watchers who have sounded the alarm over a bursting bubble. But few have been so specific about their timeline for a crash or bleak in their predictions. MacBeth believes that Canada could see a massive correction as early as next spring or summer, depending on oil prices and world economies, with prices dropping 40 to 50 per cent.
It’s quite the departure from the latest take on the housing market via the Canada Mortgage and Housing Corp (CMHC). Less than one week ago, Evan Siddall, the CEO of CMHC, told an audience in Montreal that the agency isn’t “overly” worried about a housing bubble.
In the interview, MacBeth explained why we’re heading for a pop: “Bubbles have characteristics that are very common – a period of rapidly rising prices, people telling each other stories as to why it makes sense, people feel regret for missing out, and the media gets involved in writing stories about the bubble. We tick all four boxes in this bubble.”
The recent housing crash in the United States corrected prices back to the trend line, but MacBeth warns the same can’t be said for Canada. In order for prices to return to the trend line, they’d have to drop up to 50 per cent.
Debt is also big part of the problem. His advice for people who have a lot of debt attached to their home is to sell and rent. His views on condos were even harsher. Here’s what he said:
“The number one advice would be to sell the condo, because condos are a terrible investment, they’re not even an investment at all. The houses are going to correct obviously, perhaps even more than condos, but there’s always a market for single-family homes – at some price you can always find a buyer for any single-family home in Toronto or Edmonton or Calgary because there’s always going to be a shortage of those. You might not like the price, but you could sell. But condos, literally, I could see a situation where you just can’t find a buyer.”
He believes that if you own a house over an extended period of time, one aspect, the value of the land, will rise over time at the rate of inflation. However, that doesn’t happen with condos.
The CBC reported Prime Minister Stephen Harper recently downplayed the bubble threat while in New York, suggesting the country wasn’t bound for a United States-style crash and only “a small percentage of Canadian households would be vulnerable to interest rate hikes or a downturn in prices.”