From here, the most likely scenario for Canadian real estate is that prices level off. Various governments have introduced measures to cool demand, but the politicians have been tentative, leaving most of their voters’ cherished housing subsidies intact. So don’t get too hung up on all the talk that government policy has killed demand. The political class has a vested interest in keeping home prices buoyant: real estate has become a big part of the economy and, as such, an important source of revenue. You might even say that real estate is too big to fail, a political reality that will disappoint the economics academy but reassure a nation in which nearly 70 per cent of the population now owns a home.

Bottom line: don’t believe everything you read about Canada’s housing market. The best of times are over, but the worst of times remains a low-probability event.

•••

Now let’s get back to Buffett, the world’s third-richest person and a bringer of financial stability. In June, Buffett, who works through his holding company, Berkshire Hathaway, received an email from a contact in Canada about an investment opportunity: benighted Home Capital, which by this time was being portrayed as Canada’s version of Lehman Brothers, the investment bank whose bankruptcy is synonymous with the Great Recession.

Marc CohoDes, an infamous short seller who bets against companies from his chicken farm in California, was trashing Home Capital on Twitter and in the media. The Ontario Securities Commission had accused the firm of misleading shareholders over the fake mortgage applications. Depositors were fleeing, and the stock price had plunged 70 per cent. In May, The Globe and Mail reported that regulators were hours away from forcing Home Capital to shut down.

All this had made the overall housing gloom worse. Goldman Sachs, the influential New York–based investment bank, doesn’t pay a lot of attention to Canada, but that didn’t stop if from putting the odds of a True North financial crisis at 30 per cent. The value of the Canadian dollar dropped, and investors sold their shares in Canada’s six biggest banks, even though each one had just posted massive quarterly profits. Buffett absorbed all of this information from his station in Omaha, Nebraska. But instead of an imminent collapse, he saw opportunity. “I’m bullish on Canada,” Buffett would tell The Globe a few weeks later.

The comparisons between Home Capital and Lehman were nonsense; one was a tiny purveyor of home loans that represented about one per cent of the Canadian market, the other was a legendary Wall Street firm that had dealings with virtually every major bank in the world. If Home Capital went down, Bay Street wasn’t going down with it.

Buffett saw through the sensationalism. He preys on panic: when mortals lose their heads, he comes down from the heavens and buys at a discount. Buffett would have known that even if Home Capital did run out of money, the Office of the Superintendent of Financial Institutions in Ottawa would take over the firm and distribute its assets. After 10 days of assessing the situation, Berkshire announced that it would purchase $400 million worth of Home Capital stock and extend the firm a $2-billion line of credit.

“Essentially,” said Buffett, “I feel Berkshire’s participation is very likely to improve an already reasonably stabilized position.”

•••

You don’t have to be a billionaire to take advantage of fear. Quentin D’Souza has been honing his investing strategy for 15 years. He started out trading stocks, bonds, and mutual funds. But when he learned that his wealth manager was driving a Jaguar — while he was driving a Pontiac Sunfire — he figured there must be a better way.

The guy driving the Jag had always steered D’Souza away from property. D’Souza, who is based in Whitby, Ontario, decided to go his own way. Since the 1970s, home prices in the Toronto region have trended consistently higher. Also, demand was growing faster than supply. D’Souza decided to become a landlord, buying properties, fixing them up, then renting them out. “People always need a place to live,” D’Souza says. “But they can stop eating at McDonald’s. They can stop shopping at Walmart.” His point: a stock investor has little control over his or her investments. As a property owner, he says, “I have direct control over the asset.” D’Souza now owns a couple of dozen buildings through his company, Appleridge Homes, and has written three books about the rental business. Recently, he bought himself a new truck.

“People are scared. When people are scared, it’s an opportunity.”

For some, D’Souza is an emblem of Canada’s problem: another blind fool who believes house prices will never fall. But he isn’t a pure evangelist. For example, he’s wary of the Toronto condo market and says thousands of already stretched buyers could be in for a shock if they ever have to pitch in on a major repair of the glass tower for which they are now partially liable. His spreadsheets of historical prices in the Greater Toronto Area show that booms sometimes lead to busts: it happened in the 1970s and again in the 1980s.

The latest data has convinced some that a third collapse is inevitable. Home sales dropped more than 30 per cent in August from July, and new listings were the lowest since the summer of 2010, according to the Toronto Real Estate Board. Prices are holding up, though. The average cost of a home in the GTA in August — $732,292 — was still three per cent higher than it was a year earlier.

That fits with D’Souza’s outlook. The era of double-digit price increases is over, he says. But if you are willing to buy and hold, he doesn’t see how anyone can lose money on Toronto housing. D’Souza has been taking advantage of the softer prices, adding a few more properties to his collection over the summer. He says he will be looking out for more.

“People are scared,” he says. “When people are scared, it’s an opportunity.”

•••

There is still a lot of smart money that sees potential in housing. That will keep upward pressure on prices; maybe not enough to drive big returns but likely enough to forestall a financial crisis.

And if it doesn’t? Canada’s banks are flush with cash and it would take a lot to topple them. Chris Catliff, chief executive of Blueshore Financial, a credit union in Vancouver, said housing prices could plunge 30 per cent and his firm would still be fine.

There’s another backstop: you, the taxpayer.

David Dodge, the former Bank of Canada governor, told me earlier this year that no government would let the real estate market collapse. Later, I heard Finance Minister Bill Morneau describe for an audience in Montreal what voters expected of him. Among other things, “they are counting on you to ensure their home keeps its value,” he said. That’s not the kind of thing you say if you are indifferent to the housing market.