Larry MacDonald is a former Canadian economist who now spends his time managing his own portfolio and writing books on investment. He also writes for a blog on Canadian Business and recently, he wrote a post titled “When will housing Armageddon arrive?” The post drew more than its fair share of critics on the Web; and while we don’t agree with everything that Mr. MacDonald said in that post, he did bring up an interesting point that’s at least worth bringing up.
In his post, Mr. MacDonald spoke about the rising cost of Toronto mortgages and Ottawa mortgages, as well as those that are climbing all around Canada. He admits that home prices grew in April by a rate of 0.8 per cent, and that in March that increase was 0.5 per cent – less of an increase, but an increase nonetheless. And while many have been concerned about those increases, thinking they continue to inflate the bubble, Mr. MacDonald thinks that it may just be a lot of talk.
What he says is that other economists and experts in Canada (Garth Turner and Ben Rabidoux are the two names he mentioned,) could actually be creating the very bubble that they fear. That when homeowners see and hear the stats, they’re prompted to sell, sell, sell! This leads to overstock of inventory on the market, the market turning into a buyer’s market, and home prices plummeting. This is what will actually cause a bursting bubble, not the fact that home prices have been driven up exponentially in the past couple of years That is, according to Mr. MacDonald anyway.
In his post he explained, “Based on the risk that the thicket of gloomy blog posts/tweets eventually whip up homeowner anxieties enough to precipitate waves of selling in a self-fulfilling prophecy.”
He continued on later in his post to say, “As a homeowner I admit not only to a vested interest, but also to wishing the perma-bears [Turner and Rabidoux] would just go back, frankly, to their lairs for a really long nap. Their proclamations substantially risk devaluating a major asset of mine.”
Here at CMI, we have a great respect for Turner and Rabidoux’s opinions; they typically seem to be right on the money, and they usually have the stats to back up their arguments. But we also have a respect for Mr. MacDonald, and see a point to what he’s saying. No, if we are in fact in a housing bubble and it bursts, it will not be because bloggers, media, or Canadian experts “made” it happen. But could excess panic be causing a little blip in the market place? It’s an interesting thought.
