Photo: James Bombales

For years, economists and industry pundits have been blaming rising Canadian home prices on economic fundamentals, saying that supply has been unable to keep up with rising demand. But that’s just not the case, according to one infamous housing bear.

“Many people…have perpetuated the myth that Canada’s house prices are not a problem, except in Vancouver and Toronto, where special factors support their elevated house prices,” writes Hilliard MacBeth, in his latest note.

Vancouver’s high home prices are often attributed to its lack of serviceable land, while record levels of immigration are credited with Toronto’s prices continuing their march upwards.

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Last week, Bank of Canada governor Stephen Poloz wrote in a statement that supply-demand fundamentals were to blame for rising prices in both cities. But that’s not a good enough explanation for MacBeth.

“The argument that fundamentals in Vancouver are strong and therefore price gains, almost five-fold since 1999, are not unusual is ridiculous,” he writes. “For one thing, Vancouver has always been in the same location and there have been serious house price corrections in the past, although not recently.”

MacBeth calls the notion that Toronto prices have risen due to high levels of immigration “nonsensical,” saying that the city has been experiencing same amount of immigration for years.

“The rate of increase of Toronto’s population has been about average for Canada, and for the five years between 2011 and 2016 that rate of increase was only slightly more than half that of Calgary,” he writes. “But people repeat these myths so often that they become part of the lexicon and get picked up by people in authority like central bankers.”

MacBeth believes there is a serious bubble in Canadian home prices, in both its larger and smaller housing markets.

“Prices in the top six markets have tripled, quadrupled and even quintupled since 1999 in all major Canadian cities, an unprecedented increase in prices in such a short time,” he writes.

So if there is a bubble, what can be done about it? Steps need to be taken to cool the market further, according to MacBeth.

“Wise people do make plans for those hazards and take preventative action to mitigate the damage,” he writes. “If only Canadian leaders had made similar plans for when this housing bubble bursts, instead of denying the risks.”

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