The man behind 'The Big Short' sees trouble in Canada - Macleans.ca
 

The man behind ‘The Big Short’ sees trouble in Canada


 
THE CANADIAN PRESS/Jonathan Hayward

THE CANADIAN PRESS/Jonathan Hayward

The short seller made famous for his controversial and astute negative call on the U.S. subprime market is calling for a “pretty severe correction” in the Canadian housing market. Steve Eisman, a fund manager at Neuberger Berman Group LLC in the U.S., was featured in Michael Lewis’s book The Big Short.

Eisman told Bloomberg TV he is not calling for the kind of financial crisis that unfolded in the U.S. market, because the Canadian subprime mortgage market is much smaller than in the U.S. However, he cautioned that the run up in prices in Canada is even sharper than the U.S. experience.

He said a pullback of 15 to 20 per cent in prices was likely, with the main impact to be felt next year after the latest round of mortgage lending practices comes into play in Canada.

More: Canada is addicted to debt. Here is how regulators are trying to limit the fallout

“In Canada, there’s some pretty good evidence that the housing market is finally starting to turn over,” Eisman told Bloomberg on Monday. “Canada is not going to crash, but it hasn’t had a credit cycle in 25 years. I think they’re about to have one.”

He said Canadian Imperial Bank of Commerce was the most vulnerable of the country’s major lenders and was at risk of an earnings decline.


 

The man behind ‘The Big Short’ sees trouble in Canada

  1. a drop of 15-20% of what? Toronto already had a drop of this much from the peak in the spring. Most in my small sample don’t feel that the same house today would sell for the amount paid last May. It may bounce back but is not certain at this time.
    .
    one of the major problems is the way house prices are reported. Averages for a defined geographical area are the norm. There is not breakdown between new product vs resales or price psf number. There is not apples to apples comparison just the broadest of views.
    .
    But the author is correct to say that a drop from the brief peak would not be disastrous for Canada. the number of buyers who stretched themselves too far for that brief period is not catastrophic for the economy as a whole and the housing machine can continue just fine if it is down from the peak of this spring.

    • If you want to get granular, the same type of home will vary in price by area in a city like Toronto. The point being there is no way to paint real estate with the same brush, it varies from city to city, area to area, building type to building type. I expect Steve is looking for the Great White Short 3.0 or is 4.0. It’s not the first time large US hedge funds or investors have tried to short the Canadian market. They did make a nice bundle off of Home Capital recently.

      • Sure…. aided by that champion of the shareholder the OSC
        .
        the real point re price statistics is that they are not always moving the way the headlines imply they are.