Shiller weighs in once again on Canadian real estate

Robert Shiller, the Yale economist, famed bubble expert, and co-creator of the Case-Shiller house price index in the US has once again added his thoughts to the Canadians housing miracle:

Canada is ‘a purely random success story’: Shiller

On the broader Canadian economy….is it as strong as we often hear?

“Canada is being feted in international circles after coming through the financial crisis relatively unscathed, but the accolades may be unwarranted.

That’s the conclusion of a leading U.S. economist who’s crunched the numbers and determined two factors that may take Canada down a notch or two: the housing market looks due for a U.S.-style drop; and, without oil, the country would be in trouble.”

While many economists, market observers and Canadian politicians trumpeting Canada’s success like to highlight the country’s differences from the United States, Prof. Shiller said that historical economic data show they are very much alike, with both economies heavily influenced by a similar human psychology, a theme he explored in a 2009 book he co-authored called “Animal Spirits.”

“Our countries are like two peas in a pod,” he said. “A lot of the differences are random, like the oil shock.”

 

On Canadian real estate

If the historical statistics serve as a guide, Canada looks to be headed for a big drop in home prices, although any decline probably won’t be as pronounced as the U.S. housing bust, he said.

“I suspect the same forces are in operation in Canada, although maybe somewhat attenuated because mortgage institutions are more responsible there.”

“I’m not a salesperson, so I gave Canada a bland view,” he said. “It’s the same thing on both sides of the border.”

Calgary and Vancouver appear to be the biggest possible housing bubbles in Canada, he said.

“Vancouver feels bubbly like San Francisco,” he said. “There’s a West Coast culture that extends from Seattle down to San Diego.”

People should think of buying a home as risky. They should maybe put some money in housing, but invest all over…and maybe take part in the Chinese Miracle.”

 

I’m a huge fan of Shiller’s work.  If you haven’t read some of his books, namely ‘Irrational Exhuberance’ and ‘Animal Spirits’, they are well worth the buy.  It’s also worth remembering Shiller’s track record for identifying bubbles: He predicted the 1987 stock market crash as well as the US housing bubble.  This is not the first time he has warned on Canadian real estate:

Canada may face housing bust– October 2008

Since that time we have had a short-lived correction followed by an even stronger bounce to new heights….outpacing income and inflation by some 20 times.

Cheers,

Ben

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5 Responses to Shiller weighs in once again on Canadian real estate

  1. The Masked Haranguer says:

    “I suspect the same forces are in operation in Canada, although maybe somewhat attenuated because mortgage institutions are more responsible there.”

    YEEEEEHA!!! Thank you, Thank you very much, Dr. Shiller!!!

    A certain college professor has an upcoming birthday and I suggest dinner at Swiss Chalet. They are serving something new on their menu…….. a quarter CROW dinner!!

    My treat!!!

  2. John in Ottawa says:

    Wow! I’m a bit surprised by Shiller, whom I admire greatly.

    We’re the same if it weren’t for the oil. Saudi Arabia would still be over run by camels if it weren’t for the oil. It’s all about the oil and the potash and, and, and. Canada is a resource rich nation with a very small population. That is a huge difference, and not one that should be acknowledged grudgingly.

    Now, with that rant over, all the data suggest he is right on with his recommendation to stay away from the Vancouver and Calgary housing markets. Buying there reminds me of walking over a bed of hot coals. It should work, it could work, I’ve seen it work for others, but if it doesn’t work…..OUCH!

  3. Liam from Calgary says:

    Shiller hasn’t a clue what he’s talking about, or just trying to make headlines.
    Calgary is where the oil companies head offices are. The job market is booming here once again.
    Working people don’t have to sell their homes and eager buyers are shelling out the money to get in the housing market.
    I think the house prices in Calgary will stay flat for the next year.

    OIL = JOBS

    • Tony from Calgary says:

      Well, lets hope the price of oil stays high, else there won’t be as many “working people” in Cowtown anymore, and those people you were so sure of who wouldn’t sell their homes (now referred to as “non-working people”) will be forced to thanks to their 140%+ average debt-to-income ratio.

      -FN

  4. dmitri says:

    Last time oil stayed high, we’ve had a spectacular blowout. So yes, let the oil stay high.

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