When the Bubble Bursts: Surviving the Canadian Real Estate Crash

by Hilliard MacBeth

Hilliard MacBeth argues that investors should stop thinking about real estate as a safe investment, warning that it is only a matter of time before Canada faces a housing crisis of major proportions. He guides investors towards safer and more lucrative investments in order to protect their assets and ensure a comfortable retirement.

Genres: Finance, Business, Money, Economics, Nonfiction, Personal Finance, Canada

272 pages, Kindle Edition

First published March 1, 2015

About the author

Hilliard MacBeth has advised Canadian individuals and families from across Canada on their investments for over thirty-five years. His 1999 book, Investment Traps and How to Avoid Them, predicted the collapse of the dot-com bubble in the stock market and gave investors practical advice on how to avoid getting caught off guard by market cycles. Hilliard lives in Edmonton.

Reviews

[Ben · Rating 5 out of 5]

RE-stradamus

This was probably the scariest read I have read all year, and I read Wilful Blindness: How a Criminal Network of Narcos, Tycoons and CCP Agents Infiltrated the West - but, fun fact - they are connected stories.

This book looked at the currently-popping real estate (RE) bubble in Canada.

I found it a fascinating economical read, and one very important and timely now.

There's lots left.

Top takeaway - this whole bubble is all to thanks from speculators and speculation.

Let's hope it isn't as bad as the book predicts....

4.8/5

[Aly Mawji · Rating 5 out of 5]

Investment advisor Hilliard MacBeth’s book about the coming Canadian housing crash is well researched and engaging. It is the scariest financial book I’ve read.

He starts with the observation that whatever his retail clients are fascinated by usually ends in epic disaster. In the early 80s it was oil and gas stocks; the mid 90s featured Bre-X. Tech stocks (including Nortel) took centre stage in the late 90s. Since the mid 2000s, his clients talk about one thing: real estate. What they say to him: “It keeps going up, it can’t go down, buy now before it’s too late.” Some of his clients own multiple properties which they rent out, often at a negative monthly cash flow in the hopes of future capital gains. Sound familiar?

MacBeth uses research and data to back up his arguments for a coming housing crash:
1. Over long periods of time, real estate tends to keep up with inflation. It doesn’t perform much better than that. Periods of price growth beyond basic inflation matching are unusual and often turn out to be bubbles. Canadian real estate, especially in major cities (Vancouver, Toronto, Montreal), have risen three-fold since 2000 which seems unsustainable; incomes and prices of other goods have not risen in proportion. Canadian house prices in relation to average household incomes have risen to some of the highest in the world, higher even than in the US at its housing bubble peak.
2. The bubble could burst for any number of reasons including higher interest rates or a recession. Interest rates are currently at historical lows. At higher rates, many people wouldn’t be able to afford their mortgage payments. In a recession, people who lose their jobs will be unable to meet their mortgage payments.
3. Structural shift. The large wave of baby boomers downsizing will create a large supply of homes. Boomers won’t want the upkeep, won’t be able to climb stairs, and will want to use those assets for retirement. This supply will be added to large supply that has been added in recent years due to the building boom. Taken together, this supply will overwhelm demand and prices will fall.

MacBeth tears apart commonly held opinions about real estate. These include the ideas that renting is wasting money (it’s cheaper than owning and the savings can be invested in stocks or bonds), that real estate always goes up (not true, look at USA/UK/Ireland/Spain/Japan/etc.), and that the Canadian market is somehow unique and immune from a downturn (sorry, it’s not).

MacBeth points to the government run CMHC mortgage guarantee program as one of the reasons mortgage lending and personal debt levels have gotten to this point. Without this program, banks would be more conservative in their mortgage lending because they would bear the risk of loss. In economics, this is called a moral hazard.

The people that will be most hurt by the crash are retiring baby boomers hoping to cash out and pay for their retirements, new buyers with high loan to value ratios, landlords trying to make money renting out condos, shareholders of Canadian financial institutions, those in the construction industry and last but not least the Canadian taxpayer (who will foot the bill for the CMHC losses and bank bailouts). But those won’t be the only groups affected. As housing is usually by far the largest asset for most households, the consumer, who drives our economy, will be negatively affected in a big way. Rather than continuing to enjoy the wealth effect from rising home values, they will feel poor. In response, they will start saving and spend less resulting in a dramatic effects across the Canadian economy.

[Jason · Rating 3 out of 5]

If you own real estate in Canada and don't plan on selling soon, you should read this book.
If I was still living in Canada, I don't know that I would sell my home to rent instead because moving and selling a home is a real pain, but I like to think I'd make that decision before it would be too late. Then again, we have never considered a house as an investment. I guess I'm glad we sold our house when we did and made a profit, even if it wasn't as big as it would have been a year earlier or a year later.

I like at the beginning where he says "All the mistakes and mine and mine alone."

[Marty Abeleda · Rating 4 out of 5]

A thorough and well articulated analysis of the current state of the real estate market in Canada (and by extension, Australia). For young potential buyers, it’s a good guide on what mistakes to look out for and alternatives to the zeitgeist of “getting on the property ladder as soon as possible”. As someone who has been continually skeptical about the sustainability of this divergence between incomes and debt it’s reassuring to see examples from other countries and Canada’s 90s bust.

[Farhad · Rating 4 out of 5]

"House prices always increase", "Canadian banks are more prudent", "Renting will cost as much as buying in the end, so I'm better off buying". These are among some of the myths that the author shatters. Backed with facts and charts on Canada's economic history in both the housing market and the stock market, the author argues that now is a bad time to buy a house or to have high leverage; rather, you should pay off your debts (mortgage, line of credit, personal, etc) and wait until after the crash is finalized (about a decade after the crash starts) to buy a house. I found myself agreeing with him most of the time. Good and easy read. Canadians should read this even if they don't end up agreeing and taking action.

[Harvey Zang · Rating 4 out of 5]

The housing market is deemed even safer than gold in the Canadian market because of the prolonged housing bull market in major Canadian cities such as Toronto and Vancouver. This book is well researched and explained why the author thinks real estate is a poor investment, especially at the current time. The book was written in 2014 and now it’s 2020, the market is still booming, but all the points/numbers that the author made in the book only exacerbated in the last couple years. For instance, the Canadian consumer mortgage debt to disposable income is at critically high level versus all other major developed economies.

The ongoing pandemic might pose a stress test to the Canadian housing market as the economy has suffered wildly over the past months or so.

[Stacy · Rating 4 out of 5]

A good survey of the current real estate market in Canada and some upcoming challenges for investors. I didn't find MacBeth's argument completely convincing but he does make some good points that are worth bearing in mind for long-term financial planning.

[Radek Wodzinowski · Rating 5 out of 5]

Great book forecasting the inevitable disaster that is the Canadian Real Estate Market

Reading this book in 2023 is interesting in consideration of the pandemic binge. But, one thing is for certain, if the author feels we were in a bubble before, we are in an even worse one now.

[Keegan Webster · Rating 3 out of 5]

Solid breakdown of the housing bubble in Canada, demonstrates how much of the Canadian economy is tied, directly or indirectly, to the outsize growth of house prices over the past 20 or so years. The latter half of the book, on what to do in response to this crisis as an individual investor, I found slightly less interesting but that’s likely because; 1. I do not have any investment portfolio to speak of, so have no options to respond to this crisis other than continuing to be a renter, and 2. I am generally not interested in the personal finance side of these books, and rather the macroeconomic outlook they provide. As well, towards the second half of the book the author leans more and more on anecdotal evidence as well as “common sense” truisms that detract from his larger points. He mentions ideas about how landlord tenant laws always side with the tenant, as well as talking about how most tenants are “bad tenants”, which is an interesting perspective to say the least, as well as spouting stereotypes about lazy millennial culture. Not exactly surprising insights from an investment portfolio manager, just exposes some of his biases I suppose. The first half of the book however is quite well researched, and again the second half would likely be helpful to anyone who already has significant skin in the game. Noticed a few typos, and the prose was sometimes awkward, but not to the point of detracting from the book. Would recommend to anyone you know who is into the idea of house flipping or just to sound smart to your friends who want to invest in real estate.

[Jacob Wilson · Rating 4 out of 5]

This book has the ring of a Canadian Cassandra, offering accurate prophecies that go unheeded. MacBeth delves depe into the systemic vectors of risk and crisis contagion within the Canadian housing market. He also highlights the centrality of mortgage finance and housing construction to the Canadian economy, and consequently, the Canadian state. All in all, it is a compelling, if grim, read. An essential part of understanding the economic phenomena at play in the housing market right now, even if the figures are mildly out of date.

This text isn't especially critical of finance capital as such, but it has the advantage of being lucid and clearly written. I highly recommend giving this a read if you're interested in just how exposed Canadians are to the risks manifest in the housing market.

Make no mistake, the crash will come, and this book will be one of the few that assembled the pieces clearly ahead of time.

[Kyle · Rating 2 out of 5]

If you followed this authors advice you would’ve lost a lot of money. His main theory about real estate being a bubble wasn’t wrong. But it’s been 7 years since his prediction and it hasn’t played out at all. Seeing as I’m a decent investor in equities I don’t see a point in buying real estate in Canada as your rates of return will be garbage compared to equities. But making a call then being wrong 7 years later…. Yikes.

[Ryan Madden · Rating 4 out of 5]

I really liked this book. Hilliard MacBeth put in a lot of good research into this, and has many years of experience as a financial adviser. I learned plenty of useful information about the real estate industry in Canada. It is an absolute crime that the Canadian government has aided and abetted this real estate bubble to inflate the way it has. Hopefully the bubble pops, and out of the devastation a stronger Canada emerges.

[Andres Garces · Rating 5 out of 5]

This book provides a reader a good description of the magnitude of the Canadian housing bubble. It is actually worse than most people think.

Unfortunately, due to speculation and cheap debt in the past, a massive bubble has form around real estate in Canada.

So... what's going to happen now? A correction seems to be already happening...

[Benjamin Pierce · Rating 3 out of 5]

Well that was a terrifying read. Well written and likely to come true, but only giving 3 stars because had you heeded the advice in this book and sold in 2017, you would have a serious case of sellers remorse.

[Princess Banana of Bananaland · Rating 3 out of 5]

Read 60% then skimmed the rest. I feel like after having read other finance books this was a repeat and I was bored... If this is the first book you're reading on the topic though, you should find it informative

[Livia Fajkusz · Rating 4 out of 5]

A must-read if you are thinking about buying a house in Canada, even though it is not a new book.

[Christopher Fry · Rating 4 out of 5]

It was published in 2015 and it appears what he predicted then has been delayed until now (2025)

[Cory Vance · Rating 3 out of 5]

Not many detailed reviews of this book. So hard to get a unbiased gage on the feedback. Did not get all the way through it maybe because it mimics much of the day to day press sound bites. There is no doubt there has been a dramatic rise in Canadian real estate in a few key/larger markets. It is hard to paint the overall market with the same brush given all our geographic and economic differences. I am sure a mortgage expert could spin the same numbers to reflect some of the risks involved in investing.