Prediction: Your $1,000,000 House Will Drop To $100,000, SOON!

Gotcha!

Remember when I said that negativity sells?

Over the last decade, we’ve seen hundreds of prognosticators suggest the Toronto real estate market is primed for a collapse, but I want to show you the most insane prediction I’ve ever seen.

In this video, the female equivalent of Garth Turner predicts that…..wait for it……the Canadian real estate market will drop by as much as 90%.

Oh, and that was in 2012 – before the last 15% of gains…

Picture the following…

In 1968, a young man says to his friend, “The Leafs are going to win the Stanley Cup, real soon!”

The Leafs don’t win the Cup that year, or the next year.

In fact, the entire decade of 1970’s passes by, and the Leafs have nothing to show for it.

The 1980’s pass by, as do the 1990’s as well, and we’re into the new millennium with no Stanley Cup for the Toronto Maple Leafs.

In fact, the Leafs don’t win a Cup until, well, let’s suggest 2018.

So…

Can that young man, who isn’t very young anymore, lean over to his friend and say, “I told you they’d win the Stanley Cup?”

This is how it’s going to play out if and when the Toronto real estate market declines.

For the last decade, every single day, somewhere, some place, there’s a real estate bear predicting the decline.

Newspaper articles are being written, magazine covers are dedicated to it, and books are being written about the “collapse.”

As I mentioned earlier in the week, some guy, who after seeing him interviewed on TV – I can say I wouldn’t trust him to roll my pennies and take them into the bank to exchange for two quarters, has written a book called, “When The Bubble Bursts.”

Hillard MacBeth, a tragic last name if you ask me, has predicted a 40-50% collapse in the price of Canadian real estate.

Now of course, of course, of course – this guy has no real vested interest in the real estate market, right?  I mean, it’s not like he’s a portfolio manager for Richardson GMP in Edmonton, who makes his living by having people invest in stocks and bonds, rather than real estate…

Somebody should have told MacBeth that while Garth Turner’s book, “The Greater Fool,” may have started as a Shakespearean tragedy but ended with a financial windfall, ie. real estate bears flocking to Garth’s funds, it’s even easier to be made to look the fool in 2015.

And speaking of fools, as I promised, we’d discuss Nicole Foss, who suggested in the video above that real estate values in Canada, on average, would drop 90%.

If you started the video and then got bored (I don’t blame you…) skip ahead to 5:04.

After predicting that prices would drop by 90%, Ms. Foss goes on to explain:

“In a credit crunch, your pool of buyers ends up being people who can buy a property in cash, and who choose to use incredibly scarce cash for that purpose, at that time.  That pool of buyers will be extremely small, and so you can get enormous price collapses when you simply undercut price support.”

Right.

Soooo……..what the hell kind of explanation is that?

That sounds like utter rambling to me.

It makes no sense, and doesn’t explain WHY prices are going to, apparently, collapse 90%.

I understand the concept of “buyers with cash getting deals,” but that’s in a depressed market.  She didn’t explain HOW the market will become depressed (to the tune of NINETY percent…), or WHY this collapse will take place.

All she did was follow up an insane prediction with a rambling explanation.

How does she take herself seriously?

How do any of these people?

Just think about a 90% drop in prices, for a moment.

Nicole Foss says that this is “on average,” meaning of course that for every property that decreases only 85% in value, it will be offset by the property that decreases 95% in value.

So where can I find one of these properties that, say, decreases 98% in value?

Imagine a $200,000 house dropping to $4,000 in value?

It’s one thing to throw out a wild prediction like, “real estate prices will drop, on average, 90%,” but it’s another thing to really put this into perspective on a single-case basis.

Are there any $3,000,000 Moore Park homes that will drop in value to $300,000?

Any downtown, $400,000 lofts that can be picked up for $40K in a few years?

I’m sure that Ms. Foss would advise us that this “average” drop in Canada will mean Toronto specifically will ONLY decrease about 80%, so perhaps that takes some of the sting away.

But where, oh where, do people get the gall to make predictions like this?  And when they’re wrong, how come there’s no accountability?

Throughout my thirty-four years on this planet, I’ve made some wild predictions about the real estate market, the economy, and a host of other things, but I’m man enough to not only admit when I’m wrong, but to show you my predictions, right here, right now.

Have a look:

 

So by my count – I was about one-out-of-four, with one abstention, because I was 14-years-old and “didn’t care about anything.”

I know, it’s childish.

But so too is calling for a 90% drop in real estate prices in Canada.

And how come stock gurus are allowed to “update their targets” as though their first true prediction simply disappeared?

We see this in the newspaper all the time, ie. the Globe & Mail’s “Eye on Equities.”  It’ll note that XYZ Corporation is trading at $22.50/share, up 51% this year, and then Bob Smith from ABC Analysts will “raise his forecast” to $22.75, from $8.50.

What the heck is that about?

I wish I could do that!

After the New England Patriots start the season 11-0, and I had predicted they’d finish 6-10 and miss the playoffs, I can “raise my forecast” to say that they’re a great team, and the worst they’ll do is finish 11-5 on the year…

So if and when the Toronto market doesn’t correct 90%, will Nicole Foss produce a YouTube video titled, “I’m One Of The Stupidest People Alive?”

And when Hillard Macbeth’s tragedy ends, and prices don’t drop 50%, will he release a second book?  Or will he just continue to imitate Garth Turner, and scare people out of real estate and into mutual funds?

I’ve seen some terrible books written on how to make money in real estate.  Whether it’s flipping pre-construction condos in Toronto (I won’t name names, but one of the worst “books” I’ve ever read), or buying houses, fixing them up, and…….wait for it……..selling them for more money, there are no shortage of awful books that area bullish on real estate.

But the bearish media on real estate takes things to a whole other level.

We’ve all seen some crazy things in the past decade when it comes to bearish and negative media relating to Toronto real estate, but somebody predicting a 90% drop – that just takes things to a new low…

39 Comments

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  1. james dean says:

    if house prices dropped 90 percent, canada would turn into a 3rd world country fast, banks would also go broke in canada. it would be similar to venezuela. canada currency has already lost 30 percent of value

  2. Bobby says:

    Govt Of Canada support black money coming coming from China and do washing in Toronto Real estate to support Syrian refugees. Handsome PM has no clue what is second hand buying in Asian culture.

  3. Bobaart says:

    Seeing as we bailed out the housing market by the tune of over 140 billion dollars to keep it a float. I think it can very well crash but you just keep sending the bill to the unborn. Its the baby boomers way. Print obscene amounts of wealth and tell their kids to pay it.

  4. Mark L says:

    If the price went up 30% over the past year and 20% the previous year, I would think that a possible crash of about 25% would not be unreasonable. The price would be back to what it was worth about 2 years ago. The only ones who would be hurting would be the ones who bought at the peak and have a mortgage up to their eyeballs. Do I feel sorry for the rich foreign speculator who just had to have the property and outbid everyone — not at all. I don’t believe non residents of Canada should be allowed to buy residential real estate.

  5. A Realtor Who is Honest... says:

    Home trust just bailed and needs a bail out of 2 billion. BMO is securitizing mortgages and selling them off as mortgage back securities, this is exactly what happened in 2005 US, house hold debt to income was 157% its at 169% here. Prices will drop back to pre 2015 in toronto or roughly by 50% which is what they raised to in the past 2 years.. It is great an all when prices go up by 40% in a year and 20% the prior it is not so great when people’s incomes rise by 1 percent in that same time and no body but Chinese from China and Hong Kong who have zero interest in living in canada or in the homes are the only ones able to afford to buy purley to flip in 6 months to a years time. But when you put in the tax which you must of 15% they no longer want to buy and flip because even if prices go up by 20% they will break even at best with transfer costs and ppty transfer and transaction costs… The pathetic game is OVER! The tail end of 2017 will be the opposite of the past 2 years..BTW in toronot and in vancouver currently the top 1% income earners are the only onese able to qualify to buy a starter detached home, most of whom already own a home! Guess who else can buy? Rocket science here folks…..

    1. A Realtor Who is Honest... says:

      Basically your tear down in east van is worth 800k at best and 1.5 on the west side and that should tell you everything you need to know about where the market is going in Vancouver. Your tear down in the annex is worth 1 and 1.5 in forest hill at best and that’s that and not a penny more, everything else has been pure media hype misinformation, deception and chinese from china and hong kong speculation and flippers with zero interest to live work or do anything but buy and flip for more in 6 moths to a year.. With the tax rate of 40+ percent on high income earners. no one in Canada can afford anything. I dont care if you are in the top 2 percent and make 250k, you get taxed at 50% an are left with half, enough to pay a mortgage of 1.2 pay for groceries and use your credit cards to pay for your kids day care and be in debt up to your eyeballs…Canada is a joke and 2018 will be it’s mickey mouse economic demise as it should be..

  6. Luc says:

    I think they made a typo mistake, it might be 9% drop in house prices, because there is no way i see it going even 20% lower in the next year. especially in Vancouver

  7. John says:

    If I loan free money to everyone in Canada for only chocolate bars, the price of chocolate will sky rocket. If those same people don’t have the financial understand of over leveraging and will borrow as much free money as I’ll give them, chocolate bars will become unobtainable… in the short term.

    Wonder what happened when people max out how much free money they can get?

    Enjoy your chocolate

  8. Pc says:

    Yes with 30% unemployment rate due to automation…lol

  9. Jay says:

    What does every feel after the 12-15% spike YoY. considering the steep hike in prices from last year, what does everyone feel now, fresh perspectives??

  10. Bill norley says:

    What type of math are you using to come to the conclusion that 90% off is $4,000? Before insulting somebody for their opinion perhaps you should go back to 2nd grade and learn basic math.

  11. Stock Ellis says:

    People should understand that CMHC insures over $500 billion worth of mortgages…on less than $12 billion of capital. Not saying that this is a recipe for disaster…just that the US counterparts had a very unpleasant time of it a few years ago.

  12. ScottyP says:

    Lost in all this is the fact that this video interview was conducted by Russia Today — an undeniable bastion of accurate and honest reporting.

  13. RobFjord says:

    her explanation was “in a credit crunch”– and she is absolutely correct, in a credit crunch prices can fall 99.99%. In the 2008 credit crunch didnt florida real estate fall over 50%! and if the QE program wasnt installed the implosion would have gotten much worse…the entire global financial system was just hours away from shutting down completely…many assets would have gone to zero bid if that happened. I predict it will happen…within the next twenty years, if that kind of timing is not good enough for you, im sorry, i cant nail it down to the exact day, but the fundamentals for global finance are worse today than they were in 2008. just dont mistake inevitable, for imminent.

  14. Chroscklh says:

    This person maybe no crazy. I have seen 90% drop price real estate – when my country lose government in coup. I buy 4 house, sell +60% higher when new govt install, old govt execute. This how I make money to move Canada.

    1. Jim B says:

      A coup in Canada. It’s coming, right?

  15. Tiffany says:

    Disappointed with the content of this post. You’re material is usually far superior than to dwell upon such ridiculous predictions. Please stick to where your strengths lie.

  16. Boris says:

    Well, this Macbeth guy could be very right for certain areas of northern alberta, Fort Mac etc. Rest of Canada, well not so much.

    I understand his view though, from a portfolio management perspective, but it’s fraught with ifs. IF, a couple in their late 40s who have a combined income of $300k have 90% of their net worth in equity in their home, that is a problem.

    Diversification, motherf_cker, do you speak it?

    1. Boris says:

      The other thing I would add, is that folks, asset prices DO go down sometimes. I am pretty objective and can honestly say I have no clue where Canadian real estate is going. If it goes up, cool, I own some. If not, cool I own other stuff and it makes the next house cheaper.

      In any asset, ie baseball cards, oil, copper, antique cars or tulip bulbs, massive appreciations in price over protracted periods are always followed by corrections. Always. It could be a week, a month, a decade, but it WILL happen. It can be a crash, a consolidation, a moderate correction, a weak dip over a few years, whatever. But it does happen, and it will happen. Don’t know when, don’t know how much, but, yeah, its gonna happen.

      1. Jim B says:

        “Don’t know when, don’t know how much, but, yeah, its gonna happen.” Thanks, Boris, that’s really helpful.

  17. Natrx says:

    If it wasn’t for a worldwide bail out, breaking every monetary rule to print money by the US which helped stabilize the world, housing would have collapsed.

    Nobody expected that much ‘interference’ to save it.

    So ‘technically’, the bears were right. But the system is forever set up to make sure houses prices stay strong. You can’t beat city hall.

    1. Boris says:

      Don’t fight the Fed they say.

      One can make the point that aside from just doing this longer (zero interest rate policy, money printing) aside from asset expropriation and the state actually forcing private property onto their balance sheets (theft), we are running out of policy tools to fight disinflation or deflation. At some point these idiot central banks have to let markets work themselves out without massive amounts of government intervention. Which would likely mean, higher rates and lower asset prices for certain things: bonds, high yield products, real estate, dividend paying equities.

    2. Appraiser says:

      What do you mean, “Nobody expected that much ‘interference’ ” ?

      I thought bears could predict the future.

      1. Jimbo says:

        What affect do you think the IMPP (Insured Mortgage Purchase Program) had on the market? Without buying $125 Billion dollars worth of uninsured mortgages in 2008, banks wouldn’t have been able to lend as freely as they have.

        Or do you think the above was just a safety net just in case and overall business would’ve gone on as ussual?

        1. Appraiser says:

          “First of all, the NHA MBS purchased by CMHC consists of pools of mortgages already guaranteed by CMHC against default. As a result, the risk of default by a mortgage holder is already borne by CMHC, whether the mortgage appears on the balance sheet of a financial institution or that of the Government of Canada. From that standpoint, the IMPP generates no additional risk for Canadian taxpayers.”

          http://www.parl.gc.ca/content/lop/researchpublications/prb0856-e.htm

          1. Jimbo says:

            You are way too defensive and ignored the question. I’m not saying it added risk to our government. What I asked was what affect did it have on the real estate market. Without that extra money on the banks hands how would things have been different?

            I believe it was a smart move, but I’m also cautious. I know that 13% of the US market was subprime. I know that 12% of our market owes close to the majority of the debt. I also know that 8% in mortgage defaults caused the US financial system to go into turmoil.
            Just because the numbers are similar doesn’t mean we will have the same outcome, nor would I even say it is a 50% chance. I’m also not stupid enough to ignore the numbers completely.

            I get that people who read this blog don’t want to discuss future crashes or downturns. I do enjoy insights from industry professionals who can give input on how policy decisions have impacted there industry directly.

          2. Jimbo says:

            I see I wrote uninsured mortgages incorrectly. My apologies. It is still $125 billion of liquidity our banks wouldn’t have.

    3. Kyle says:

      Nobody expected them to Los so many games.

      So ‘technically’ the Leafs are Stanley cup champions…

    4. Geoff says:

      Umm… ‘technically’ the bears were WRONG.

      You could say ‘hypothetically, they should have been right’ but technically, they bet on the losing horse.

  18. Jimbo says:

    I don’t think a major correction is coming but I do believe that housing growth will slow down and over time decrees a little until inflation picks up and wages follow. My logic for this is as follows.

    Canadias had a mortgage debt to service ratio of 6.6 in 1990 which peaked at roughly 7.3 in 1992. This is just after interest rates went up and people were renewing their mortgages. Over time it dropped to 5.1 in 2002 and started to rise again in 2006. It is sitting at 6.4 now.

    If interest rates rise 2% over the next five years it should slow sales activity down and people will still be able to manage the debt they took. If and I don’t think this would happen but if interest went up 5% we could see some real defaults in the market, but as long as it is less than 10% of households no major correction will happen.

    1. Jim B says:

      Please check your spelling (do not rely on SpellCheck) before posting, because when I see two spelling mistakes in the first three lines (“decrees” instead of “decrease” followed by “Canadias”) I’m sorry but I simply can’t take you seriously. Seriously!

      1. ScottyP says:

        Looks like it might be time for Jimbo to drop the bo from the Jim.

  19. Ed says:

    Well I’ll say this much. If prices drop 90% you’ll probably have to pay someone to rent the place.

  20. moonbeam! says:

    David Fleming through the years!! priceless!

    1. GinaTO says:

      that… hockey… mullet… priceless indeed 😉

  21. Appraiser says:

    I too wasted my time watching the Hilliard McBeth interview on BNN. I was really hoping for some new insights and thoughtful analysis. Instead I sat, mouth agape, at the idiocy that flowed from his mouth.

    His thesis boils down to this. The man claims to have 150 clients, and after speaking to some of them he got the distinct impression that they were too focused on real estate. Thus a 50% decline in real estate is inevitable. Wow!

    What’s really comical to observe lately is how the bears have decided to double-down on their crash calls. Instead of admitting to being wrong and practicing a little introspection, they simply repeat the same old dogma.

    Except for Jason Kirby over at Macleans magazine that is, who recently invented a new form of analysis in a recent article: “What we see taking hold is deep-seated complacency. And that should be the strongest signal yet that we’re at the peak of this housing cycle, and that the long-awaited correction could be taking hold.” http://www.macleans.ca/economy/realestateeconomy/canadas-housing-market-and-then-there-were-two/

    That’s right. It’s not the old familiar price to rent ratio, or price to income ratio, or Canada vs. U.S. home price differential that will do us in – it’s “complacency”.

    One reader named Neil Murphy wrote in reply: “This is your strongest signal in your analysis? I have reviewed many real estate analyst reports in my years but have yet to see “deep seated complacency’ as a metric for forecasting real estate.”…Perhaps it’s time for the sourpusses like you to embrace better analytics? Or are you just hoping that if you naysay for long enough eventually the market will make you true?”

    1. Joe Q. says:

      The funny thing is that the comment you mention — from Neil Murphy — also urges readers to look at find better analysis in a “free report” by Ben Myers, without mentioning that Ben Myers works for a real-estate developer (which itself has a noteworthy history) — or that his link drives Maclean’s readers to his own mortgage brokerage website.

      “Shows to go you” that everyone’s views are coloured by their own business interests.

      To my mind, there is self-serving commentary and (at the extremes) histrionics on both sides. The people telling hotel ballrooms full of people that the sky is falling RE-wise are mirrored by the people telling hotel ballrooms full of people that if they don’t invest in rental condos, they’ll be forced to subsist on cat food in retirement. The media’s goal is to hold readers’ / viewers’ attention, thus directing eyeballs to its advertisers. Everyone has something to sell.

      1. Appraiser says:

        There is a difference between self-serving commentary and being wildly wrong year after year. Sure, it could be argued that nearly everyone has something to sell, but how about owning up to the truth once in a while?

        The expiry dates on each and every doomsday prediction have passed (except McBeth – who has been quoted to say that the market would flop by this summer – hold your breath), yet not one bear will admit they were wrong.

      2. Ben Myers says:

        I’m not going to deny that everyone has some sort of biased, but it’s the ultimate cop-out answer. MacBeth, Turner, Madani and the other bears make some good points (but more bad ones), but I don’t summarily dismiss everything they have to say because they are selling books or financial advice, and neither should you. I combat the individual things they say with actual facts and data. Conversely, just because I wrote something and I work in the development industry doesn’t mean you should immediately dismiss it before even reading it because “I’m biased”. If someone actually reads the report ( http://fortressrealdevelopments.com/news/market-manuscript-spring-2015/ ) they would see that 95% of the content for this report is sourced commentary and findings by banks, data providers, and independent consultants.

        I’m happy to debate something that is in that report, but most people choose to insult me or my company instead of debating the topics.

        The main difference between me and many of the folks making these wild predictions is I conduct a lot of research, publish that research for free, talk about where I made errors in my past predictions, and I’ve actually had correct forecasts in the past.

        David’s point is one that I’ve made a million times, business is about timing, predicting something happening without a timeline attached to that forecast is useless.

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