Investors told not to buy into condo scaremongering

Industry players believe Canada's smartest real estate investors will see through one industry player's recent doomsday stance.

"I like to think most savvy real estate investors won't be selling off their real estate holding because a portfolio manager wrote a book," MortgageBrokerNews.ca commenter, Paul Hudson wrote. "That makes about a much sense as investing your retirement savings in all in one company's stock because a financial advisor believes he has a theory."

A portfolio manager with an upcoming book release has sounded the housing correction alarm bells but one broker has already poked a hole in his theory.

In the original Globe and Mail article, Hilliard MacBeth of Richardson GMP advises 30-50 year-old condo owners – the cohort who make up the majority of condo ownership – to sell their condo units because they are “terrible” investments. But as one savvy MortgageBrokerNews.ca reader points out, this could be a direct cause of a housing crash.

“If all condo owners from 30-50 sell their condos, thus increasing supply from an already high supply situation -- while maintaining the present demand of condos – price decreases,” James Loewen of RMA The Loewen Group said on MortgageBrokerNews.ca.

He further explains that the result would be an influx of supply which would create a drop in prices and, as a result, negative equity positions for current owners who may choose to walk away from their condos – a situation that has already happened in the United States following 2008’s recession.

“It’s brilliant: forecast a correction in prices - then give the advice that will actually cause the collapse of the condo market and actualize your very prediction,” Loewen said. “It’s similar to predicting a decrease in XYZ stock in Canada, then colluding with every investor and client to recommend the sell position of a stock, thus increasing sell orders with minimal buys; stock will have to decrease and I'm now cited as a wizard by creating its own demise.”

For his part, MacBeth is predicting the housing correction will be put in motion this fall.

“The housing market pretty well dries up starting in about October, November and then the new wave starts in February or March,” he told The Globe and Mail. “I would think that, depending on the price of oil, depending on world economies and all that, we’ll see next spring, next summer.”

MacBeth’s book, When the Bubble Bursts: surviving the Canadian real estate crash, is due to be published in March 2015.

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