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Originally Posted by Realtor 1
For those saying a fall off the cliff is inevitable and the Americans have the experience to see it, what are you basing this on?
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I am a corporate finance professional who has a keen interest in valuation bubbles and how they end. I have read books specifically on such things. My favorite being "Manias, Panics, and Crashes: A history of Financial Crashes" by Charles P. Kindleberger & Robert Aliber.
What's happened in Canada is a classic valuation bubble, and all bubbles tend to end violently. It's inevitable, the primary reason is because market valuations in bubble scenarios are based more on expansion of credit and psychology rather than market fundamentals. Prices reach such unsustainable levels financed by increasingly high leverage that as prices climb higher the fragility of underlying market participants grows (160% debt to income, higher than our American friends ever were at). Eventually something upsets the apple cart, the market psychology turns which leads to a contraction in credit, which exposes the fragility of the underlying market participants, which then turns into a panic and eventually a market crash.
In any case the book I suggested above is a an interesting read if you're into this kind of stuff and it highlights that basically no valuation bubble ends with a soft landing and provides basically every example in history going back centuries and great underlying rationale to why.