Impending Canadian Housing Crash??

When you read this article that’s started to resurface, you might start to agree to the author’s viewpoint……but he makes a number of errors in reaching his conclusion. Have a read:

http://www.cbc.ca/news/business/housing-market-a-bubble-set-to-burst-hilliard-macbeth-says-1.2784511

Here is why I disagree:

Firstly, let me say that if you predict rain daily in summer at Death Valley, you will be wrong for a very long time. Eventually however, given enough time…..at some point you will finally be vindicated and be able to say "I told you so!" However it neither proves your position as an expert, nor does it prove any intelligence on your part. Predict a housing bubble month by month, year by year, and given enough time you will be proven right……but it could be a very long wait yet.

Here are my issues with the author:

1)      He’s writing a book about it. He needs to scare people into buying his book…..that’s like listening to someone selling Y2K survival kits writing a book about the doomsday of the pending Y2K: if you believe his article, you might buy what he’s selling.

2)      He’s talking about a hard landing where prices could drop 40-50%. In the Fraser Valley, our housing costs are about the same as our land costs…..meaning if values drop 40-50% all the value will be in the construction and $0 in the land. That will never happen in the near future, and I will stake my reputation on that! In fact, I don’t believe we will ever see a drop of 40% on average across Canada, not in the next 10-30 years. Every time we see a massive drop in markets, we learn from the occasion and put more controls in place. We don’t decrease regulation.

3)      Stricter lending rules have already been put in place by CMHC. We’ve seen mortgage amortizations drop from 35 years to 25 years, we’ve seen decreases in rental suite income qualifications, stricter regulation on down payment verification, more stringent requirements for self employed people, tougher qualifications on investors, and so on. This has already happened!

4)      Interest rates have already fluctuated between 2.5 and 4.5% during the past few years, and at no point did buyers cease to qualify or buy. In fact, research has shown the vast majority of home owners could easily afford an increase in excess of 6% interest rates after their 5 year terms renew.

5)      “People should look at housing as where they live….but certainly not expect any investment component.” History has long proven true that real estate provides a more solid, stable, and profitable investment than the stock markets. As John D Rockefeller said, “The major fortunes in America have been made in land.” Then there is my favorite: “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” –Franklin D. Roosevelt

My crystal ball is no better than Hilliard MacBeth’s, however I will add that his position at Richardson GMP is to manage assets primarily in the markets, so he has to be biased against people investing in real estate. I will say this: there don’t appear to be any economic influences on the horizon that will drastically cause a reversal in buyers ability or desire to purchase, and most of his reasons for believing in a crash do not stand up to scrutiny.

So I continue to be an optimist, and yes I’m buying more real estate today.

Jonathan Gelderman

Jonathan has been one of Western Canada’s top producing residential and investment sales agents for over a decade, and manages a multi million dollar real estate investor fund.