Turner Predicts 10-15 Year Bear Market in Housing

Garth-Turner Former MP and real estate author, Garth Turner, was on Globe Investor Thursday delivering his trademark warnings about real estate.

He told the Globe’s Rob Carrick that home prices would fall 15% nationally, 20% in Toronto, and 40% in Vancouver.

He said Canada’s real estate fall “has the potential to be as bad as in the United States." (U.S. home prices fell much more than 15%, however, toppling 30% from their May 2006 peak.)

On the other hand, Turner said Canada’s “financial system safeguards” should insulate us from a meltdown.  According to Turner, these safeguards include lower levels of mortgage securitization and CMHC’s backstopping of mortgages through its default guarantees.

Nonetheless, Turner says, "Get used to being poor if you just bought a house."  He predicts it could take 10-15 years before prices recover…once they start falling.

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Sidebar: Anyone who follows the markets knows a 15% price drop is realistic. In fact, market corrections are natural and 15% is far from catastrophic. Turner’s call on housing prices is, therefore, not really “news” or prophetic.

Turner made some critical comments about CMHC (calling it a “dirty old mom,” etc.). The media has been picking on this rhetoric and it’s perpetuating a hoard of misinformation.  We’ll run a story on this topic in the following week.

We do applaud Turner for one thing, and that is raising the level of concern. It’s sometimes good to alarm homebuyers a bit–just enough so they don’t overbuy or overextend themselves. In this way, like him or not, Turner adds value.

  1. Garth Turner has been predicting a meltdown in the market for as long as I can remember…I guess he figures if he keeps predicting it long enough that sooner or later it might actually happen. Plus…he’s obviously figured out that these alarmist predictions sell more of his self-serving books. I put him in the same pool of housing market fools as the cheerleaders who ignore the fundamentals (i.e. consumers’ affordability thresholds) and encourage buyers to buy now before ‘inevitable’ price increases.
    I agree that a 15% drop in prices is within the realm of possibility in general, and that a 20-25% drop in Vancouver is possible given the recent rise in prices to near-peak levels, but a 40% drop prediction speaks to Turner’s ignorance on the nuances of the Vancouver market.

  2. The 15% number assumes that we’re already at the peak… based on the bidding wars and seemingly endless supply of 5%/35-yr newbies to keep pushing the bubble, the peak will even higher, and the crash even more drastic.
    I don’t know much about the market in other areas of the country, but I see a drop of 25%-30% or more in Toronto (core) — especially since in a downturn, the high end ($1M+) properties drop the most and will skew the average.

  3. Turner cracks me up.
    He ‘predicts’ all manner of bad things, even if they are mutually exclusive. Scroll through his blog, and you will see that he simultaneously ‘predicts’ massive inflation, massive deflation, massive stagflation, etc.
    I guess it is good that we have people urging caution — I just wish his feet would be held to the fire of all of his previous dire predictions that haven’t seemed to materialize.

  4. bob you have zero attention span because each prediction came with a probability of happening or not happening. The point was made with respect to the level of catastrophe that each prediction might lead to and those in power kept changing the game of which no one could predict so the deck of cards were constantly being swapped. You knew interest was going to zero? That’s what saved RE.
    To a young buyer a 15% drop will absolutely SMASH them. They’ll be financially screwed for the rest of their lives. This makes this “non news” that much more important. I know at least 7 people in the 30 year age bracket who are going to get totally f-ed up by this because they bought the hype instead of the “non news”. They simply ignored this “obvious” “non-news”. Well listen ladies and gentlemen, when things haven’t collapsed in your adult years, you just can’t hear it coming! But I hear it loud and clear and it’s news to my friends, trust me. They still don’t believe it.

  5. All depends on one’s situation–as long as you don’t need to sell or refinance, a 15% drop isn’t going to “SMASH” you. We recently sold after being in a place for 3 yrs–just long enough to have enough equity to move now that our family has grown and needs have changed. We’ve bought a cheaper property overall and paydown our mortgage with the difference, and don’t plan moving again for at least 7yrs–from there we’ll see where the market is at and what are needs are. If we can’t afford a move, we won’t. The thing is that you have to have a plan going in so you have an idea how you’re going to respond depending on what happens with interest rates, market value, etc.

  6. Anthony, people don’t plan their misfortune, it just happens. And it so happens that people can’t plan to stay at any one place for longer than 5 years let alone the full 15 if it crashes. What will happen if you have to cough up $50k just close? People will simply become slaves to their houses and stay? It’s already so and they indeed are slaves, it’s written in the cards as they say.
    What strikes me is the obvious that real estate must correct AND also that people knew this was coming and prepared for it. Non-sense, people aren’t even planning for next year let alone 25 years from now. I can’t even convince some people we’re in a recession. It doesn’t affect them. la, la, la, the world of illusions, it’s all over the place. GROUP THINK! POSITIVE THINKING. THINK IT AND IT WILL BE SO! THINK AND GROW RICH! When will this end and how?

  7. Garth,
    Is Mr.chicken little. What cracks me up is the fact he released his Gretaer FoOl book in Feb 2008. In 2009 he bought a POS property and sold 2 others. HOWS THAT FOR IRONY!

  8. What a microcosim these comments represent. 1 person with some common sense and the rest are “greater fools”. Unreal how powerful the R.E. KoolAId is in this country.

  9. Yes – let’s all call Garth “chicken little” since he didn’t predict the exact date the market would crash…
    I’m sure that everyone here knew in 2007 that interest rates would go to zero, CMHC would grow un-checked into the 6th largest financial entity in Canada based on 5%/35-yr mortgages, and Jim Flaherty would further inflate the market by buying $100B in risky mortgages from the banks.
    When the Conservatives bet the entire economic “recovery” on giving cheap money and bogus tax credits to home buyers, these factors obviously change whatever forecasts were in place prior to the new policies.
    Just wait until the next election is over when Dim Jim and his boss have to choice but to let the market correct!

  10. Garth uses some pretty vague language in that interview… After the market peaks, there will be a drop in sales that could last for “some period of time”. Way to go out on a limb.
    Garth could be right – it’s not out of the realm of possibility… but he does have a track record (like most other prognosticators) of being wrong more than he’s right.
    VJ is certainly entitled to his/her opinion as well, but generally people who post in all caps alluding to conspiracies by “those in power” don’t strike me as the most credible analysts.
    But that’s only my opinion. ;)

  11. Visited an open house today … nice house, ocean view, only 6 months old, $30k price reduction … owners selling because hubby got laid off … they thought they were going to stay in their dream home for the rest of their lives when they built …
    The moral: A dream does not a plan make.

  12. T.O.
    5/35 mortgages get a bad rap. 9 out of 10 people who get them are highly qualified from my experience. 35 year amortizations are minimally more risky than 25 year mortgages because the qualifications are rigid in each case. This is Canada not Las Vegas.
    Also, if you put down 5%, a 15% price drop will leave you no worse off if you’re in a 35 year am.

  13. The real question is why does anyone actual write down anything Garth says? I still remember him slamming Mutual Funds as a bad investment. Then he woke up one day and realized he could make money speaking for Financial Planners and mutual funds became the best investment ever. I guess we need some comic relief in our life.

  14. The real point is using logic to support some sort of conclusion i.e. the process not exactly the conclusion. Given all the data, what would you predict? I have no patience for RE pumpers anymore because I think everything points to one thing…a massive correction.
    Everyone like to harp on the barer of bad news…the scapegoat. This way of thinking is old and tired. You want something positive, just watch 90% of the “news” where they weed out the bad stuff (especially the local stuff). No one can tolerate bad news anymore. It’s time to wake up to reality and start facing our problems again because the good times have ended, now the struggle begins, one peak at a time. Oil, food, population, demographics, etc.

  15. There seems to be a consensus that it is not if, but when, there will be a correction. Does anyone care to speculate when this might happen and what would trigger it? I am guessing this might happen in about 5 years, when all these fixed mortgages under 4% come up for renewal. What factors might cause a significant downturn before then? Would a 3% rise in prime be enough, or whould this just cool things down, resulting in a more balanced market?
    We are now in a home worth about $450K in Ottawa, considering a buying a larger home in the $700K range for our growing family, in a neighbourhood with better schools. We have about $300K equity, so would need to borrow $400K. My wife and I have good incomes and stable government jobs. We could delay the move for a few years, but there is a risk to that too, since prices are rising at a faster rate where we want to buy than where we are now. Supply is very low in our market, resulting in very quick sales and multpile bids. Any advice would be appreciated!

  16. A 15% drop is not catastrophic ? So the young couple gets in with 5% down then loses his job and has to sell minus realtor fees ? He is one SOL on borrowing any equity and then the real estate commission will put them into bankrcuptcy unless they suck up the $50,000 plus they don’t have.
    Trivializing things like this is what makes you house pumpers look so out of touch with reality and is why this is going to end very ugly.
    [Edited]

  17. The Toronto market is up 20% from a year ago. So, a 15% drop would seem very likely to me. It would still leave prices up 5% a year after the worst credit crisis in history. Turner is an idiot. All he does is shout about the inevitable collapse. A peak by definition will be the highest point followed by a decline… otherwise it is not a peak.

  18. Do you guys know why the Indian rain dance works?Because Indians dance until it rains.
    Same goes with Mr. Turner. He has been professing a meltdown since the last 5 years. At some point, it will happen.
    I can also profess a 15% recovery following the 15% meltdown. Does not make me any better than anyone else…

  19. bob you have zero attention span because each prediction came with a probability of happening or not happening.
    Ha! Puh-leeze.
    Show me some concrete “Garth Turner Analysis” in which he provides “probabilities of happening” in anything other than ridiculously vague and/or ridiculously over-certain terms.
    To the extent that Turner’s predictions can be said to have “probabilities” attached to them, they should also have “error bars” . . . which, considering his track record, should just about span the entire range of probability.

  20. Thanks to all for the viewpoints. Dialog on these sorts of topics is invaluable, regardless of our opinion of the messenger. I think we’d all agree that anything that encourages homebuyers to plan more prudently and temper exuberance is a positive…
    Cheers,
    Rob

  21. bob, I don’t even care who’s right or wrong anymore because forecasting is impossible, but I can applaud someone for raising a good strong argument. It’s refreshing to have someone present a logical train of thought.
    Buy because you might get priced out forever is what we’ve been hearing for years. It’s a statement, it can’t be justified.
    Everything we see is founded on cheap energy of course. The surfs will return to the fields in short order to become slaves to the land and their crops. Then we won’t have to listen to their non-sense and the “entertainment” they prefer. Easy foods means the stupid people have a voice to spew non-sense AND get rich. This isn’t going to end well for the majority of the people/surfs.

  22. “Everything we see is founded on cheap energy of course. The surfs will return to the fields in short order to become slaves to the land and their crops. Then we won’t have to listen to their non-sense and the “entertainment” they prefer. Easy foods means the stupid people have a voice to spew non-sense AND get rich. This isn’t going to end well for the majority of the people/surfs.”
    Seems to me like that is spewing non-sense!
    Anyway, I hate to say it, but folks, Garth is right! There is absolutely a possibility that at some point in the future house values could fall 15%. I would even say its likely! But as was already pointed out, if your plan was to buy a property, have it appreciate 50% in 5 years, then sell, you may be in for a disappointment. The reality is that MOST home owners, no matter how long they have owned, could swallow a 15% price drop. The very few that have negative equity on renewal will indeed be out of luck, but does anyone think that this makes a housing market collapse?
    Hey wait a minute, we have had a 15% drop in prices last year! Did the world end? did the housing market collapse? NO!!!
    I’m not saying that home ownership is an easy road to riches, anyone that in even partially informed knows this is not the case. But the notion that a 15% correction will bring us all down is far fetched to say the least. Seems to me that if you plan can’t absorb a 15% price volatility, then you need a new plan.
    Just my 2c

  23. “A 15% drop is not catastrophic?”
    No. It’s not. If you buy real estate over a lifetime you might see multiple 15% declines.
    Just because a small number of people (and I emphasize “small”) will get in over their heads or not be able to recover from unexpected job loss, doesn’t mean the market will collapse. Canada has had many other price run-ups and corrections, and we’ve survived them all, and will continue to.

  24. So 15% is not catastrophic for all those zero down/40 yr amorts(ditto for the 5/35 crowd) up for renewel in a few years meanwhile rates have no where to go but up? Give your head a shake. God…this is not opinion it’s fact. 5% would be catastrophic. Quit shooting the messenger and look at the facts staring you right in the face people.

  25. “The Toronto market is up 20% from a year ago. So, a 15% drop would seem very likely to me. It would still leave prices up 5% a year after the worst credit crisis in history.”
    20% increase, then 15% drop does not lead to 5% profit!
    100 x 120% = 120 (20% increase)
    120 x 85% = 102 (15% decrease)
    That’s 2% profit, not 5%.
    20% increase followed by 20% decrease, you don’t break even, you lose money!

  26. … but I can applaud someone for raising a good strong argument. It’s refreshing to have someone present a logical train of thought.
    “The surfs will return to the fields in short order to become slaves to the land and their crops. Then we won’t have to listen to their non-sense and the “entertainment” they prefer. Easy foods means the stupid people have a voice to spew non-sense …”

    Wow! What an amazing non-sequitur . . .

  27. VJ – Time to dial down on the hyperbole.
    There have already been corrections in excess of 5% in some markets. I have yet to see mention of rioting in the streets in Calgary or Saskatoon. What you’re pushing is opinion, not fact.
    Al R

  28. Hmm…interesting to see what strong emotions come on this topic.
    I’m an admitted bear about the prospects of housing prices in Canada going forward.
    However my concern is not solely that people “can’t” survive a 15% drop. Rather, it is HOW they will adapt in response to a 15% drop.
    Home equity represents the majority of non-registerd wealth in Canada (more than 50%, as confirmed by Stats Canada). A longterm decrease of 15% in the market value of ones real estate will have a substantial impact on ones actions as a consumer.
    Indeed, does anyone else read those real person retirement planning case studies in the weekend newspapers? When if I plug in a 15% drop in their real estate assets, it has a devastating effect on their financial plans (retirement, monthly budget, etc)
    In any event, as I said I am already a firm believer on a price drop. I just wanted to suggest that the bulls think not just about whether people can “survive” a drop but also how they would survive and the effect on the greater economy.

  29. Economic disaster authors like Turner continue to provide endless fun for all with their dire and baseless predictions. Just the title and cover pictures of his books are hilarious drama and all in the name of making a fast buck.
    Like e’one here, what I do know is factual history. In the last 100 years, the western economies have experienced many a war, recession or various economic crisis and will continue to. But history proves that we should overcome and prosper in the long haul as we always have. As for fools, it’s not the people that try and fail that are fools. Only those that never try!

  30. Banker in an Ivory Tower,
    ??
    I don’t think anyone (Turner or otherwise) has said “don’t try”. We bears are simply saying try intelligently, pick the right asset class.
    You generally post intelligently, so I’ll presume you were in a hurry and typed your last post on the fly.

  31. Real estate is a long term investment. As far as I’m concerned too many people do NOT deserve to own a home or real estate. Greed is what created all this stuff and Garth Turner is just looking to publicise himself…nothing more. Real estate up 20% – down 15% – this is not a crash since one is still up by 5%. We should bring back a minimum down payment of 10% on all house purchases and programs. The more down people have, the less likely a mortgage will fall delinquent.

  32. The difference in delinquency rate for 5% and 10% down mortgages is very small in absolute terms.
    Forcing high-quality 95% LTV applicants out of the real estate market is in no one’s long-term interests.

  33. I sold my townhouse and moved up to a detached house this past spring, during the slight market dip. While obviously I would rather see the price increase, a decrease is just on paper as long as I’m not selling. I was fine with the price I paid and the mortgage that comes with it, those numbers don’t change because of any market factors.

  34. From Brian above – “A 15% drop is not catastrophic ? So the young couple gets in with 5% down then loses his job and has to sell minus realtor fees ? He is one SOL on borrowing any equity and then the real estate commission will put them into bankrcuptcy”
    Think about what you are saying. If you lose your job it doesn’t matter how much you put down. If you can’t make your payments, you can’t make your payments.
    If I walk across a street I might get hit by a car. So I guess I should never cross the street?
    You can’t base your whole life on the worst case scenario. Buy a house if you have steady income, low debt, and a long-term outlook.
    Let home prices take care of themselves.

  35. Greg Willis, you wrote
    “If I walk across a street I might get hit by a car. So I guess I should never cross the street? You can’t base your whole life on the worst case scenario.”
    I agree 100%.
    For example, if you are on one side of the 401 and you want to cross to the other, then just cross the damn road! Seriously!! Why worry about worst case scenario that you might get hit by a car?
    I mean, sure, there are some times of the day there are a lot of cars. But other times there are few cars.
    And sure, you could use your eyes to check on the flow of cars, and use your brain to assess the risks and rewards. But that is just so cowardly!
    Live your life, and start crossing that darn street. ‘Cause that’s the only way you’ll ever get to the other side. Yee-haw!!
    Great advice, Greg, thanks!!!

  36. Greg Willis: Of course it matters how much you put down. If you buy a $400,000 house, and put $200,000 down, then you have a mortgage of $200,00. If you put $20,000 down then you have a $380,000 mortgage. If you lose your job, you have more chance of paying a $200,000 mortgage than a $380,000 mortgage. Duh!
    So people should buy houses now that they are more expensive than they have ever been? And relative to the average Canadian salary, we probably have the highest priced housing market in the world (at above 7x salary)
    What a lot of people don’t realize in Canada is that you can’t walk away from your house if it goes underwater. They will take your car, cottage, RRSPs to get their money back.
    The Canadian market is overpriced, and will correct. When? Who knows for sure, but housing at current prices is unsustainable. If you need proof of that, look south of the border, look in Japan, look at Spain, Ireland, Britain, need I go on? Oh, but we’re oh so special in Canada, we’re different, our houses are so beautiful….it’s worth $800,000 for a bungalo in East York.

  37. “Dave”
    Where did my post say not to look both ways before crossing a street?
    My point is, if a truck is coming two block away, it’s still safe to cross.
    “Coop”
    When people lose a job they usually have no income and cannot refinance. Unless your mortgage payment is tiny or you can borrow off credit cards, etc., you’re screwed, regardless of down payment.
    If you’re smart you’ll have a six month cash cushion big enough for your mortgage/living expenses. Then the down payment point is moot.
    On your last point, yes, people should buy houses now if they want a place to live for 5-10 years. Housing is a long-term expenditure and few years of price declines isn’t the end of the world for people with good qualifications and a long-term outlook.

  38. Brian: “So the young couple gets in with 5% down then loses his job and has to sell minus realtor fees ? He is one SOL on borrowing any equity and then the real estate commission will put them into bankrcuptcy unless they suck up the $50,000 plus they don’t have.”
    This could happen even as RE prices go up. This is a complete non-sequitur to the direction the market is going.

  39. Phil, over the past year the market is going up at an annual rate of 10-20%.
    Surely the one thing we can agree upon is that the direction the market is going (10-20% increase) is not sustainable and must change.
    Or is it your contention that what has happened in the past is a guarantee over what will happen in the future?

  40. Economic disaster authors like Turner continue to provide endless fun for all with their dire and baseless predictions. Just the title and cover pictures of his books are hilarious drama and all in the name of making a fast buck.
    Like e’one here, what I do know is factual history. In the last 100 years, the western economies have experienced many a war, recession or various economic crisis and will continue to. But history proves that we should overcome and prosper in the long haul as we always have. As for fools, it’s not the people that try and fail that are fools. Only those that never try!

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