An Edmonton investment manager has a dire warning about the Canadian real estate market: a major correction is coming.

“The more that I researched it and the more I asked questions about it, the more convinced I became that we are in a significant bubble in Canada,” said Hilliard MacBeth, director of wealth management at Richardson GMP, in an interview on CBC’s The Exchange with Amanda Lang.

MacBeth makes that argument in his coming book, When the Bubble Bursts: Surviving the Canadian Real Estate Crash. 

Vancouver Real estate

Housing prices keep rising, but they can't go up forever, says Hilliard MacBeth. He's predicting a substantial crash. (Jonathan Hayward/Canadian Press)

He says the Canadian real estate market shows all the classic signs of an asset bubble: a rapid rise in prices, feelings of regret expressed by those who feel they missed out on a buying opportunity, intense media coverage, and a broad fixation on the asset in question.

“Clients who have been with me for 30 years, in the last 10 years started to obsess about real estate,” MacBeth said.

Hard landing predicted

If the real estate market does decline, politicians and policymakers are hoping for a “soft landing,” in which prices level off gradually. MacBeth doesn’t think Canada will be so lucky.

“If we are in a bubble, as I’m convinced we are, then we can’t get out with a soft landing,” MacBeth said. “We have to have a hard landing, and a hard landing means that we have to go back to the trendline that was in place before the bubble started to appear.”

In this case, MacBeth says, a hard landing means prices could decline by between 40 per cent and 50 per cent, causing an economic recession.

“It probably would be a little worse than the early '90s, depending on how long it takes,” MacBeth said.

A market crash could be triggered by anything that affects the ability of first-time or investment buyers to afford a home, he said. That could include external economic factors, stricter lending rules imposed by Canada Mortgage and Housing Corp. or an interest rate hike that makes mortgages less affordable.

A house is not an investment

MacBeth is concerned that Canadians see their homes as a speculative investment.

“Think of it as a lifestyle choice,” MacBeth said.

“People should look at housing as where they live, as an alternative to paying rent, but certainly not expect any investment component. That’s a bit of a problem for baby boomers like myself, because a lot of us have a fairly large amount of equity in our homes,” and expect to use that equity to pay for retirement, he said.

Hilliard is not the only commentator predicting a crash, but so far, Canada's real estate market has defied those expectations, and has been rising since the mid-1990s.

Last week, Prime Minister Stephen Harper told a business audience in New York City that Canada is not facing a housing crisis. Bank of Canada Governor Stephen Poloz has acknowledged the risks in Canada's housing market, but believes a soft landing is likely.​