Real Estate: Facts > Predictions

By: Loretta Phinney Team

Real Estate: Facts > Predictions

Tags: Canadian Real Estate, Mortgage insurance, Lenders,

So there’s a new book out called When the Bubble Bursts. And as you’ve probably guessed, it is about Canadian Real Estate. The author makes some flashy claims, like his expectation that housing prices will fall 40-50%.  
 
Throwing around surprising numbers and making dire predictions might just be a good way to get attention in order to sell a book. It is attention grabbing enough for this blog to be written about it anyways. But Hilliard MacBeth, the author of When the Bubble Bursts does make some good points (he’s also a financial advisor).
 
A very interesting point he makes is that Canada is unique in that there is a high availability of cheap financing options that are coupled with mortgage insurance. Mortgage insurance is provided by the CMHC (Canadian Mortgage and Housing Corporation) that has protected lenders from the risk of default. Lenders are then able to provide financing to more people (who maybe shouldn’t have large mortgages).
 
MacBeth also makes the point that a potential bubble burst would be triggered by a recession. Canada typically goes through a recession every four or five years, ever since the end of World War II. And it has been more than five years since the last recession.
 
These two facts about the CMHC and the history of recessions in Canada are useful. The prediction about 40-50% is interesting, but less useful. At the end of the day it’s always better to focus on the facts than the predictions. Without facts, numbers and statistics, a prediction doesn’t amount to much.