Exclusive: Analyst explains bold prediction

Exclusive: Analyst explains bold prediction

Exclusive: Analyst explains bold prediction It’s a controversial stance, but the analyst predicting a 40-50 per cent price correction explained how he arrived at his dire estimation.

“The best measure of affordability is the ratio of house price to household income; prior to 2000, this ratio seldom rose about three times, fluctuating between two and three for decades. In the U.S., just prior to their crash, that ratio hit 4.4 times and then dropped down to about 2.5 and now is at three,” Hilliard MacBeth, portfolio manager with Richardson GMP and author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash told our sister publication, CREW. “In Canada the average ratio today is about five times, with Vancouver over 10 times and Toronto about six times. To get back to three times the average ratio would have to drop about 40 per cent, from five to three, or in the case of Toronto 50 per cent from six to three.”

The bold prediction drew the ire of MortgageBrokerNews.ca readers Wednesday night.

But according to MacBeth, Canada’s housing market entered a bubble in 2000 and has been inflated by rising commodity prices; which is a risk to homeowners, with household debt almost doubling from 2005 to 2015.

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  • James Robinson 2015-03-20 11:47:28 AM
    The ratio between household income and monthly carrying cost of a home would seem to be far more relevant than income to house prices. People do not buy a house for $500k, they buy a house for $2500 a month. It would take a big increase in interest rates to cause carrying costs to rise dramatically and with government being both the biggest borrowers and in charge of setting interest rates, my money is on low rates for a lot longer than anyone thinks......just look south to the Fed decision this week.
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  • MtgBrker 2015-03-20 11:50:55 AM
    ^^ So hypothetically if the overnight rate drops to 0% in a 6 month timeframe and your payment is still $2500, you would be ok with paying $600k for that house?
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  • James Robinson 2015-03-20 11:58:02 AM
    That is certainly how the market behaves. I bought a house in 1990 for $340k and the mortgage payment was about $3300 monthly at 13.5%. Today, the exact same house would sell for $1mm and with 20% down the payment is almost the same.
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