The man behind “The Big Short” sees trouble in Canada

Fund manager calls for 15-20 per cent drop in real estate prices

Cb real estate signs

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 15-20 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.

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“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.