Real-estate ‘bubble’ brisk business for book sales

Guessing about correction pays off for authors

Booming real estate markets are producing another kind of bubble: an expansion of authors writing about a looming crash.

A forthcoming book by Hilliard MacBeth, an Edmontonbased portfolio manager, doubles-down on the so-far-errant projections of similar books. When the Bubble Bursts: Surviving the Canadian Real Estate Crash predicts Canadian house prices will drop 50%.

It won’t even be published until March, but doomsayers have heartily embraced it.

“It’s a hot story,” says Mr. MacBeth. ‘‘Everybody cares about it a lot because we all own houses.”

Not everybody’s buying into such talk — and that includes Joe Oliver, Canada’s minister of finance, who is doing everything is his power to make sure it doesn’t happen. This past week, Mr. Oliver reiterated he does not see a bubble forming in the housing market.

Mr. MacBeth said his assumptions of a correction are based on housing prices rising faster than the rate of inflation, when they should be merely keeping pace.

“Up until 2000, they just kept pace with inflation and lately they’ve gone up twice the rate of inflation. It’s the biggest deviation in the world from the long-term price trend,” says Mr. MacBeth, add-

They keep making all these calls every year

ing prices must drop by half to get us back to the trend line where we were in 1975.

He’s hardly the first commentator to offer a warning about Canada’s housing market since the 2007 U.S. crash. David Madani, an economist with Capital Economics, draws a smirk from most real estate agents these days with his repeated calls for a 25% drop in prices. The call was made in February 2011. Mr. Madani has stuck with his prediction.

Former journalist and cabinet minister Garth Turner, who wrote Greater Fool: The Troubled Future of Real Estate in 2008, still says the market will correct, but his predictions have softened. Mr. Turner says he hadn’t factored in the record-low interest rates that plunged below 3% for five-year locked-in mortgages.

Mr. MacBeth says that just because you miss it by a “year or two, that doesn’t make you wrong.” And he says the real estate cycle can sometimes take time to play out because there isn’t as much liquidity in housing as there is in, say, stocks.

Some, like Mr. Turner, maintain the correction has already begun. “In at least half the country, you have a stagnant or a declining market but the media is focused in Toronto. Calgary and Vancouver are sexy markets, we tend to think we have a universal bubble going on. We don’t. It’s a three-city story. It’s dramatic in those cities but it’s still a three-city story,” he says.

Mr. Turner says the big three will also stagnate but he’s now saying prices will probably drop in the 15% range instead of the potential 30% decline he once predicted. “In 2008, did we know we would get five-year mortgages at 2.8%?”

On Thursday, the Real Estate Board of Greater Vancouver said house sales last month jumped 17.7% from a year ago, and 16.1% above the 10-year sales average for the month. Prices also continue to rise with the benchmark composite price for the city $633,500, a 5.3% increase from a year ago. The average detached home in the city sold for $1.26-million in September.

In Alberta, the Calgary Real Estate Board said the price of a single family home in the city rose 10.6% from a year ago to $512,800 in September.

Toronto developer Brad Lamb says the naysayer market for real estate is a constant.

“It doesn’t matter in a recession or the time of a boom, you always have these books coming out,” he says. “It’s all horses---. They keep making all these calls every year and maybe they’ll be right in 2020 or 2022. Big surprise. Prices will fall at some point.”

Real estate books are a niche market, but Toronto literary agent Rick Broadhead says there can be money to be made by weighing in on the booming market.