Brokers poke holes in ‘housing bubble’ theory

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When it comes to assessing the state of Canada’s housing economy, there are several factors that should be considered, according to brokers.
“I think the changes the Bank of Canada has made in the past few years have helped avoid the same fate as we saw in the United States,” James Harrison, president of told “They’re a lot stricter these days and buyers have to qualify at the posted interest rate.”
According to many industry professionals, the American housing crisis was due, in large part, to relaxed underwriting; something the Canadian government has aggressively clamped down on.
MacBeth, a portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, believes the Canadian real estate market is more at risk than the United States’ was prior to the recession.
"Our bubble is bigger," Hilliard MacBeth, portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, told the CBC. "At seven per cent, our exposure as a percentage of total economic activity is higher, and then we've got this nationwide obsession with buying homes and condos."
And according to MacBeth, U.S. investment in housing prior to its crash was six per cent of the total GDP.
However, as industry professionals have pointed out, there are more factors to consider than just housing as a percentage of GDP.
The Canadian government has been very active in regulating the mortgage market, making changes that create higher barriers for many Canadians to buy a home.
Most recently, CMHC announced that effective June 1, the insurance premium will rise 45 basis points to 3.6 per cent for those mortgages with less than a 10 per cent down payment. Genworth quickly matched the price hike.
Prior to that, the Crown Corporation hiked its premiums from 2.75 per cent to 3.15 per cent last year. And since 2008 the Canadian government has implemented a number of regulation changes, including decreasing the maximum amortization period to 25 year and lowering the maximum LTV to 80 per cent.
This isn’t the first time MacBeth’s views have drawn criticism. In March, MacBeth explained to why he believes the housing market is overvalued by up to 50 per cent. 
  • Anthony P on 2015-04-28 10:06:37 AM

    Its a bubble once rates rise end of the year due to high CPI inflation numbers we will get a 6month flurry of buying and then the cooling period will occur leading to soft landing and an eventual popping of the bubble

  • Dustan Woodhouse on 2015-04-28 10:10:58 AM

    I find it curious how much exposure the media will give to an individual with personal radical beliefs that are supported by so very few other professionals with any industry specific credentials.

  • Christa on 2015-04-28 10:41:29 AM

    The number of smart people who think Canada’s housing market is in a bubble is astounding. The Economist thinks prices are 35% overvalued. Deutsche Bank thinks houses are 63% overvalued. The IMF says the market is “overheated” and at risk for a “hard landing.” Citibank, Goldman Sachs, Bank of America, and JP Morgan have all warned clients about the bubble. Are all these smart analysts wrong?

  • Christa on 2015-04-28 10:49:24 AM

    US legendary Yale economist Robert Shiller as another pundit who worries about Canada’s housing market. Robert James Shiller is an American Nobel Laureate, economist, academic, and best-selling author. Is he wrong?

  • Anthony C. on 2015-04-28 11:43:32 AM

    @ Christa

    I don't know what the future holds, but support for your argument is greatly reduced when you reference the sardonic warnings from the likes of Citibank, Goldman Sachs, Bank of America, and JP Morgan...who for the most part were profiting from the fire-sale of their MBS paper to unsuspecting investors just before and during the sub-prime meltdown in 2008.

    They made out like bandits on both the buy and sell of MBS and now what...? We are suppose to kow-tow to their opinion...?

    They are in no position to offer any credible advice on the fate of real estate in Canada...the environmental factors that will impact the Canadian real estate markets are the availability of sufficient employment in combination with debt servicing, and the cost of funds borrowed by the end user...if jobs are few and the cost of funds are high, then a market correction is inevitable...we are currently experiencing the former in the western provinces, but have yet to realize the latter long as money remains cheap, we will continue experiencing these prices, with modest price reductions in areas where employment is a concern.

  • Ron Butler on 2015-04-28 12:39:17 PM

    I don't think there is really any question there are overvalued markets in this country. Real Estate is local, what goes on in Vancouver does not happen in Moncton, That being said there will be some sort of correction some day. Which day and how much of a correction in which markets is an open question. But Macbeth is just playing at being Garth Turner, 50% decline is just to grab headlines and sell a handful of books.

  • Christa on 2015-04-28 1:01:29 PM

    Anthony, I was referring to value vs. money, or rather lack of. The "correction" is your idea.

  • Christa on 2015-04-28 2:48:46 PM

    Besides, it does sound like our economists are on top of this. See for yourself.

    December 2014
    In December, the central bank estimated Canada’s housing market was overvalued by 10% to 30%, or similar to levels that preceded sharp corrections in 1981 and 1990.

    April 2015
    Canada’s top central bankers attempted on Tuesday to assure Canadian lawmakers that the country’s real-estate market wasn’t caught in bubble territory.

  • Mo on 2015-04-29 1:38:25 AM

    One can analyse in which ever one way; be it rent to own ratio, housing income vs debt, GDP vs % Debt etc.. the findings/figures always lead to one conclusion " Correction is imminent" sooner or later.

  • John W on 2015-04-29 12:33:32 PM

    I've found over the years that CMHC and Benjamin Tal of CIBC have been the closest to accurate in their assessments and last I heard them speak they were talking 6%-8% overvalued and both had the opinion we weren't in a real estate bubble. They indicated we would need to be 20-25% overvalued to be in that situation.

  • Christa on 2015-04-29 1:08:09 PM

    I am not so sure about that. Our economy and markets are not that democratic to reflect in logical changes. Our regulators will do anything to keep it going especially before elections. They will give various incentives so billboards depicting sensational selling prices hundreds of thousands of dollars over the asking prices will keep on popping. Your hopes and believes will be shaken and so will be your confidence. You yourself will buy next house against your better judgment no matter what the price, simply from fear of not being able to afford later. Our economy is not really diversified and I can't imagine collapse in real estate on top of collapse in oil. Lost construction jobs, lost revenues, growing unemployment, inability to service mortgage obligations, would really be devastating to the whole economy and the society itself. Our regulators will fight nails and teeth for re-election just because the bet on oil revenues is higher than one can imagine. It will bring house prices in our cities even higher. Sooner correction would be better for the sake of our children if you can see further than the tip of your nose. But then according to some of us, to have different opinion than TV is radical.

  • Michael on 2015-04-29 4:27:45 PM

    The bottom line is that nobody knows anything, one guess is as good as the next. On the whole, volatility seems to be the prevailing theme. We are not dealing with a traditional market place.

    The traditional mode of thought, "what happens in America, happens in Canada next, " is no longer existent. Canada is becoming a global payer in the world world economy now looking to open trade with China, south America, and even Europe.

    Real estate markets are essentially acting like stock markets

    Oil has taken a dive.....not just due to market conditions but political conditions

    And the list goes on and on

    The fact is, the economy is in a state of correction one way or the other and this in turn will affect mortgages and housing values......all schools of thought at this point in time are only speculative in nature

  • Paul K. on 2015-04-29 7:00:33 PM

    And than don't forget Asian so called "businessmen" laundering dirty money from criminal activities with impunity through Canadian real estate while our regulators turned blind eye. . . . causing irreparable damages to whole economy. It will sure steel the show in coming months.

    As China continues its rapid descent into police state repression and President Xi Jinping’s ruling Communist Party faction tightens its increasingly brutal grip on the country, the bill for all the unseemly intimacies that Ottawa has cultivated in Beijing since the days when the Liberal party ran the roost in Ottawa is coming due. It’s going to sting. The whirlwind is spinning suddenly, at a dizzying, nightmarish pace. The Canadian economy will take a hit, perhaps in the billions of dollars. The political fallout is going to be atrocious.

    It’s not so complicated if you think of the catastrophe as a series of falling dominoes.

    The first to fall was Communist Party kingpin Bo Xilai, whose last foreign-dignitary guest was Prime Minister Stephen Harper. Bo was sentenced to life in prison on bribery charges in 2013. He’d been Canada’s go-to guy in China’s ruling elite for more than a decade. Jean Chrétien, who championed Canada’s trade links to China while he was prime minister and took up the lucrative business himself immediately after leaving office in 2003, called Bo an “old friend.”

  • Ross Kay on 2015-05-01 9:22:07 PM

    Housing Bubbles are a natural consequence of a mortgage lending environment based on simple Current Market Valuations. Shiller, like many economists was right he just could not prove it.

    Home values are tied exactly to inflation and there is a 99% correlation across every market in Canada including the national one since 1985 which is the first time enough accurate sales data was available to be reviewed.

    Current Market Valuations are based on the best home selling first, then the 2nd and 3rd and so on and so on but they all sell for the same price as that best home or higher. This is what happens when realtors earn a living only through commission earnings.

    At the national level housing bubbles are calculated with 99% accuracy, Provincially 98% and large CMAs like the GTA around 97.5% all btw are within a margin of error equaling 100% accuracy. There are infrastructural reasons why measuring bubbles in areas of fewer than 100,000 homes causes this accuracy to be reduced.

    Currently Canada Nationally sits at 38.9% of the Current Market Value at risk and waiting the next correction.

    Somehow economists fail to understand that housing markets must correct because they need to rebalance so the next bubble can begin to be formed.

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