Garth Turner warned investors of a looming real estate bubble in Canada and encouraged them to diversify their net worth during a talk in Red Deer on Tuesday night.
“You ask yourself where are we in the real estate cycle, the bottom, the middle or the top. We’re at the top,” Turner said. “I think we’re in a housing bubble and I think it’s going to end.”
The outspoken former MP and best-selling author has written a number of books in recent years painting at times a bit of an apocalyptic scenario of where the housing market and economy are going.
He spoke to a crowd of around 150 people on Tuesday night at the Holiday Inn in Red Deer in a talk sponsored by Howard Mix, PEAK Investment Services Inc. and Mackenzie Investments.
However, Dale Russell, the broker/owner of four RE/MAX offices in Central Alberta, said while Turner has expertise in certain areas the Red Deer real estate market is not one of them.
Turner said the financial crisis started with real estate in the U.S. and housing prices dropped so quickly that investors had to deal with having negative equity in their homes — meaning they owed more on the mortgage of the home than it was worth. Eventually homes were foreclosed on and vacated all across the U.S.
Turner suggests similar mistakes have been made in Canada. He suggests housing prices could drop as a flood of houses go to the market as baby boomers retire.
He said there are young couples who have taken on 40-year mortgages who are able to pay for their current mortgage and nothing else.
But Russell, who has decades of experience in the real estate market in Central Alberta, said if interest rates go up by three to four per cent the kind of bust that Turner is suggesting would not happen.
He said there are a few people who bought in 2007 with very low down payments who might be in the negative equity position, but CMHC research shows people don’t default unless they lose their job or that kind of thing.
Russell said less than one per cent of mortgages are in default in Alberta, but there are millions of mortgages out there that aren’t in default and even if housing prices drop by 25 or 30 per cent there would still be equity in people’s homes.