Because I apparently have no life (TRY AND ACT SURPRISED), I’ve been spending a lot of time thinking about Canada’s real estate bubble.

Obligatory link time: I wrote a whole bunch of words on the bubble back in 2013. I also wrote about trying to buy a house in Alberta a few months ago, as well as my experiences as a mortgage broker dealing with the fraud that goes on in that industry. And so on. I keep writing about this stuff.

Not much has happened since I wrote what I consider to be my penultimate piece on the bubble almost three years ago. Markets such as Calgary, Edmonton, and Fort McMurray have declined slightly, but for the most part Canadian real estate prices have chugged slowly upwards. In May, 2013, the average Canadian house cost approximately $387,000. These days, that average has crept up to $455,000.

At least so far, my call about a bubble was wildly wrong. You might credit that to my terrible prediction skillz, or it might be that my call has just been early.

There’s plenty of evidence that I was just early. Over the last year, most of Canada’s banks are down 15-20%, with the subprime lenders (like Home Capital Group) falling even more. China’s economy is struggling, and increased capital controls put on by Beijing could mean a real decline in Chinese money buying up Canadian property. And with rates increasing in the United States, many Canadian observers think our rates will have no choice but to creep up as well.

In fact, the whole “short Canada” thesis has been incredibly popular over the last year. American hedge funds bet against everything from Canada’s banks to our energy companies to our currency — with wild success. Just about every Canadian stock is down compared to a year ago, and the decline in the Canadian Dollar compared to the U.S. Greenback made the trade even better.

It’s pretty much gotten to the point where everyone assumes the crash of Canadian real estate is all but assured, and we should all try and act surprised when it happens. It isn’t just a small group of doomsayers who think this either. Rob Carrick from the Globe and Mail seems to publish an article a week warning millennials (aside: what’s what Rob’s obsession with millennials? Last I checked, they’re not buying papers) to stay the hell away from houses, especially in Toronto. Macleans has published several bubble pieces. And famous housing bears like Garth Turner have emerged from the darkest corners of the internet to become minor celebrities.

It’s funny how much things have changed in just a few short years. In 2012-13 when I was first sounding the alarm, there weren’t many of us arguing housing was in a huge bubble. These days, the argument is common.

If you don’t believe me, head to Twitter. There you’ll find dozens of people who angrily respond to any pro-real estate tweet, statistic, or account. These people never miss an opportunity to call Brad Lamb a crook or to doubt the latest numbers out of the Toronto Real Estate Association. They also think all private mortgages are worth nothing, all mortgage brokers are brazen thieves, and all real estate is at least 70% overvalued — at least in Toronto and Vancouver.

So I decided to run a little experiment. Over at Motley Fool Canada, I wrote two articles. One was why Canada’s real estate bubble would pop in 2016, and the other was why it wouldn’t. My goal was to see which was the most popular.

It wasn’t even close. The article which predicted doom was nearly twice as popular in page views and social media shares. Several people tracked me down and complimented me on it, while I’m still waiting for my first compliment on the article which didn’t call for a massive decline.

I realize this is hardly a scientific study. There are plenty of factors that could have affected the readership of both articles. But I’ve written about the bubble before, and each time it’s been wildly popular. People like reading about how the bubble is going to burst.

Get to the point, Nelly

Geez, the guy who writes the headings is a dick. STOP RUSHING ME I’M AN ARTIST.

Okay, here’s the point. I’m a contrarian at heart. I’ve made a lot of money betting on assets that everybody else either hates or doesn’t understand.

So as soon as I realized the Canadian real estate bubble trade was getting popular, I started looking at evidence that our bubble wouldn’t pop. I concluded:

  • Interest rates seem likely to stay low
  • Toronto and Vancouver will continue to be the first choice for immigrants because of the large ethnic populations of both those cities
  • New immigrants tend to have a lot of money
  • There will always be a desire to own a house by a certain percentage of the population
  • Most of the short thesis centers around overvaluation

Looking at it from that perspective, I can envision a scenario where the market doesn’t crash — at least as bad as the U.S. market did back in 2007-10.

New York, Los Angeles, San Francisco, London, Hong Kong, Tokyo, and cities like them always have elevated real estate prices. When the Phoenix, Las Vegas, and Miami markets were getting slaughtered, New York and both California cities held up pretty well. What is we substituted Toronto and Vancouver in there?

The easy argument is neither of those cities compare to New York or Los Angeles. But from the perspective of a new immigrant, maybe they do. Both Toronto and Vancouver are still cheaper (especially after a 30% decline in the Canadian Dollar versus the Greenback), are in an English speaking country, and have large ethnic populations.

Or, put it this way. If you were Chinese, wouldn’t Vancouver be really high on your list of places to go? It would probably top mine, especially if I was wealthy enough that paying a million bucks for a house isn’t that big of deal.

I’m not arguing that Canada’s real estate isn’t overvalued, because it is. And believe me, I won’t be putting money to work buying investment properties since there’s no return. I’m not saying you should rush out and buy undervalued real estate, because hot damn you shouldn’t.

What I do question is the calls of doom for Canada’s housing market. Let’s face it; most of the short thesis consists of one thing, and that’s overvaluation. But as any experienced shorter can tell you, you need more than just an overvalued market to make up a successful short thesis. As Keynes said, the market can stay irrational longer than you can stay solvent.

Warren Buffett famously has a “too hard” pile. Betting on Canada’s real estate bubble has now officially been added to my too hard pile. I still think it’s overvalued, but I have no idea when (or if) we’ll feel the fallout. One thing is for sure; I no longer think it’s a slam dunk to bet against it.

Tell everyone, yo!