Is the housing bubble set to burst? Yes, says author

By Doug Lett, Global News, October 10, 2014

SASKATOON – Real estate values in Canada are going to crash, according to a new book. And those with lots of debt tied up in their mortgages should be looking for ways to reduce it.

That’s the conclusion of Hilliard Macbeth, who has written a book called “When the Bubble Bursts – Surviving the Canadian Real Estate Crash.”

Macbeth, who is a portfolio manager in Edmonton, told Global Saskatoon’s Morning News that he expects homes to drop about 50 per cent in value – although it won’t happen overnight.

“It’s been a long time in the building,” said Macbeth. He says to keep pace with inflation, home values should have jumped about four times since 1975. Instead, he said, house prices have jumped about nine times – more than double the rate of inflation, and well above the average wage increase.

“One of the reasons I am convinced it’s going to happen is that all bubbles burst.”

He said house prices have all the classic signs of a bubble – from a rapid rise in prices to people obsessing over real estate. However, he says there may not be any specific trigger that sets off a correction – pointing to the dot-com bubble of the late 1990’s.

“All of a sudden people woke up and said that’s crazy to be buying internet stocks at 100 times earnings, or in some cases they didn’t have any earnings,” he said.

He believes much the same thing could happen with house prices.

“People just wake up one day and say,  ‘Wow this is crazy, I’m borrowing $500,000 to buy a $600,000 bungalow in Saskatoon , I’m not going to do that, it’s nuts…..that’s the way it starts with bubbles, and unfortunately sometimes everybody wakes up the same morning with the same idea.”

Macbeth couldn’t pinpoint when he thinks the correction may happen, but believes it could be within the next year.

“Whether it happens six months from now, or one year from now, or a year-and-a-half from now… if Canadians are over-invested in real estate, if they have too much debt, now is the time to start to get that changed and get that under control,” he said.

Macbeth is not the only analyst who has predicted a major correction, but so far the housing market has defied those expectations.

The Bank of Canada has acknowledged there is some risk, but says any correction should be soft.

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