Do you ever look at current situations, societal issues, actions, or quandaries, and wonder what aliens from another planet would think?
Seriously. It’s an interesting exercise.
Of course, I’m taking this from Jerry Seinfeld‘s playbook.
He did this joke once where he asked what aliens would think if they saw us walking our dogs. The dogs lead and we follow behind, with an outstretched arm, attached to the dog wherever it decides to go. And when the dog stops, arches its back, and empties its bowels onto the ground, we stand there and wait for the canine to finish – then we bend over, pick it up, put it in a bag, and carry it with us as we walk behind the dog!
“Aliens from another planet would watch this and think the dogs are our masters!”
This comedy routine is probably thirty years old now and I would have watched it in high school, but the takeaway for me, was this:
If you want to take your own bias out of a situation, try looking at it from the viewpoint of a complete outsider.
In Seinfeld’s case, it was aliens from another planet.
For me, I often wonder how an outsider would look, think, view, opine, address, or consider a situation, whether that outsider differs in age, occupation, geographic location, or any number of other variables.
For example, if you were living in another country, what would you make of Canada’s current housing market?
On the one hand, we risk asking an uninformed individual to express an opinion on something he or she may know nothing about.
On the other hand, it invites a completely unbiased view.
So then it got me wondering:
If I knew absolutely nothing about Canada, Toronto, or the housing market here, what would I learn or conclude by reading a week’s worth of newspaper headlines? And more to the point, what would I think this says about the future of real estate in our city?
It’s a very interesting exercise! And having just completed it, I’m shocked by how this all looks.
I sat down on Saturday afternoon (ie. I’m here now, and Tiger Woods is not playing well…) and went through last week’s major headlines. I want to present ten newspaper articles, only from the major papers, and then provide three responses:
1) An “initial reaction” as I believe an outsider would see it.
2) A selected excerpt from the article which speaks to the true nature of the story.
3) My own “takeaway”.
Here we go…
“Home Prices Could Reach Peak Levels By Next Year, Set New Highs In 2026: CMHC Report”
Toronto Star
April 4th, 2024
An outsider’s initial reaction: Record-high house prices could be seen as a good thing if a country’s economy is booming, but also a bad thing if the country can’t control its own infrastructure needs, economic growth, population growth, and implement successful fiscal and monetary policy.
From the article:
“Unfavourable financing conditions are expected to make it more difficult for homebuilders to start new rental projects in 2024.”
“We anticipate by 2025-2026 lower interest rates, continued government support, and policies encouraging greater density in urban centres should make more projects viable.”
The CMHC said affordability in the home ownership market will also be a concern for the next three years, as declining mortgage rates and the country’s strongest population growth since the 1950s will likely spur a rebound in home sales and prices.
My takeaway: This headline isn’t suggesting that “peak levels” are a good thing. It speaks to a massive deficit between supply and demand. It also seems as though home construction is lagging behind population growth and that there is no plan to address this.
–
“‘Extremely Stressful For Canadians’: Housing Affordability Unlikely To Improve Any Time Soon, RBC Says”
Toronto Star
April 8th, 2024
An outsider’s initial reaction: The country’s real estate isn’t affordable and there’s no reason to think it ever will be. For some reason, people in this country are consumed by and obsessed with real estate, and it’s all they think about.
From the article:
By 2030, more than half — one million of 1.9 million — new households will not be able to afford a home, according to the report.
“If we don’t act quickly enough and forcefully enough, there’s going to be some tremendous stress on certain types of housing.”
“We’re already seeing it today with exceptionally low rental vacancy rates. It’s extremely stressful for many Canadians.”
My takeaway: This concept of “affordability” needs to be defined, since many assume this speaks to home ownership, but the new school of thought is that real estate isn’t “affordable” whether a person is looking to buy or rent. But I also think this concept of affordability “improving” needs to be questioned, since there’s no real reason why it should. Maybe people think it should or will because the government keeps telling them it will? I really wish the government – any government, would just be honest with people for a change.
–
“Dozens Of Preconstruction Homebuyers In Limbo As Ontario Homebuilder Goes Into Receivership”
Toronto Star
April 8th, 2024
An outsider’s initial reaction: Isn’t the economy booming? Why are homebuilders going broke?
From the article:
“We essentially took out a second mortgage for a house that didn’t exist,” she said.
Stuart is one of dozens of preconstruction purchasers who fear they have lost their deposit to Mariman Homes, an Ontario builder and developer of new builds with a track record of “financial mismanagement,” according to the Home Construction Regulatory Authority (HCRA). The assets of Mariman Homes were placed into receivership in January with one of their lenders, jeopardizing the home buyers’ life savings.
Mariman Homes entered into agreements to build and sell 108 homes from prospective purchasers across multiple projects in the province when they only had authorization to do so for seven properties, HCRA documents reveal. In looking at their finances, the HCRA also notes an “unexplained shortfall” of $14 million of deposit funds from homebuyers across several projects.
My takeaway: There are multiple problems here. First, consumers are not intelligent enough to protect themselves from these types of investments, and there’s an argument to be made that we need more regulation. Second, TARION and the HCRA are both failing to regulate their own builders. Third, which is the most scary part, the entire pre-construction industry could fall apart if we changed the way that consumers are abused and taken advantage of, and this would mean no builder would actually want to build. That’s a real thinker, eh?
–
“A Denser City? In The Annex, Neighbours Say No”
The Globe & Mail
April 8th, 2024
An outsider’s initial reaction: Neighbours don’t want density. Okay. But why?
From the article:
The development does represent a significant shift in Toronto planning – for the better. For 50 years, the city’s house neighbourhoods have been a giant fortress. Apartment buildings have been banned almost entirely.
Now the politics of housing are changing fast. The federal government is working to deliver new density in cities across the country. Yet this meeting in Toronto showed that some people are not ready for that change.
My takeaway: NIMBY’ism is alive and well in Toronto. But what “should” we build, and where? And by the way, didn’t the federal government just step in and allow municipalities to drastically alter zoning regulations?
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“What Is A Fourplex, The Building In The Middle Of A Justin Trudeau-Doug Ford Housing Fight
Toronto Star
April 7th, 2024
An outsider’s initial reaction: Why is the premier fighting the prime minister over housing? If this country has a housing crisis, you would think that all levels of government would be working together. And what’s all this about fourplexes?
From the article:
As Canada’s housing crisis charges on, many governments have eyed ways to increase supply and density. In Ontario, the province has introduced legislation to allow three units as a right on any residential lot.
But fourplexes have been a sticking point.
Last year, the federal government began dangling the promise of funding, via their Housing Accelerator Fund, to cities that showed progress on increasing density. In some cities, that became a de facto referendum on fourplexes.
In Mississauga, council deferred a decision on allowing more fourplex homes. But after the federal government warned the choice could jeopardize Mississauga’s funding application, then-mayor Bonnie Crombie reversed course. The city received $112.9 million just 11 days after fourplexes were approved citywide.
My takeaway: Interesting timing here. Danielle Smith was just quoted the other day as saying, “Section 92 of the Constitution says that municipalities fall within the exclusive jurisdiction of the provinces. The terms could not be more clear or more certain, and yet as we’ve come to see far too often, the federal government extends itself too far and interferes in our provincial jurisdiction, and we aren’t the only province to see this and be troubled by it.” With the federal budget about to be released on Tuesday, I think we’re going to hear a lot more from Premiers who don’t want the federal government entering municipalities, promising to hand out bags of money, and then retreating to Ottawa with no plans on how to pay for it.
–
“Federal Government Now Doing More Than “Fair Share” On Housing, Minister Says”
CTV News
April 7th, 2024
An outsider’s initial reaction: Sounds great! What a positive headline! Then again, either this federal government is doing more than ever before on housing, or it’s using “fair share” to alleviate itself of further responsibility.
Government House Leader Steven MacKinnon says the federal government is now doing “more than our fair share” when it comes to addressing the housing crisis in Canada.
“That’s why you’ve seen over the last couple of weeks, ministers and the prime minister go out around the country, work with cities, provinces, community groups, and others in terms of addressing this priority on a segment by segment basis,” MacKinnon said.
Since March 27, the federal government has unveiled measures that will be included in the April 16 federal budget, with many of them targeted towards boosting housing supply.
But some premiers have already pushed back against the latest housing announcements because much of the money comes with conditions and benchmarks that the provinces must meet.
“This is a significant overreach by the federal government to come in and attempt to nationalize housing,” said Jason Nixon, Alberta’s Minister of Seniors, Community and Social Services.
My takeaway: Every time I hear “fair share” in a political sense, I picture Jagmeet Singh suggesting that a 54% top tax bracket is somehow unfair. So forgive me, but when I hear “fair share” used in any political context, I assume the complete opposite. In this case, the “fair share” includes useless legislation and programs that people don’t want, or initiatives that provincial governments are going to fight. Sigh…
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“Many Canadians Feel Homeownership Is Out Of Reach, Poll Finds”
Financial Post
April 11th, 2024
An outsider’s initial reaction: What is the current rate of home ownership in Canada? How has the rate moved over the past decade compared to other countries? Also, this seems to be a recurring theme in the country as there are several media articles about this. Are this country’s citizens’ expectations realistic?
From the article:
A large majority of Canadians who do not own property believe homeownership is currently unachievable, according to a recent poll conducted by Canadian Imperial Bank of Commerce.
Even though 56 per cent of non-owners aspire to one day have their own home, the survey found 76 per cent of them feel that goal is out of reach.
The survey highlights key obstacles hindering prospective buyers, with 70 per cent citing overpriced markets and 63 per cent pointing to the inability to save for a down payment as major barriers. Additionally, only 28 per cent of non-owners are currently setting aside funds to buy.
My takeaway: An article about people’s “beliefs” is somewhat irresponsible since it’s putting emotions over facts. But that seems to be the style these days!
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“Rents, Home Prices Set To Get Way Worse Until At Least The Next Election”
National Post
April 9th, 2024
An outsider’s initial reaction: What does this have to do with the next election? Where’s the connection?
Despite an all-out push by the Trudeau government to “build more homes, faster,” new estimates from the Canada Mortgage and Housing Corp. show that home construction is actually poised to go down for the foreseeable future.
This — coupled with an immigration rate that remains at historic highs — means that skyrocketing rents and real estate prices are set to continue until at least the next federal election.
“Rents will rise and vacancy rates will fall,” reads the forecast. Meanwhile, the sale prices of homes will be pushed “beyond previous peak levels.”
Across the country, rents are already at all-time highs, while real estate affordability has never been worse.
My takeaway: Although I’m on record saying that I would vote for the ghost of Attila The Hun over Justin Trudeau in the next election, I think linking rents and home prices to “the next election” is pointless. A Conservative government will have different policies, but nothing will “restore affordability” the way people want it to. There is no magic wand here. No matter who is in office in the fall of 2025, there is no simple “fix.”
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The Globe & Mail
April 8th, 2024
Canada’s housing affordability crisis will hit even more alarming levels in the coming years without a bold set of policy reforms to boost supply, the economics department at Royal Bank of Canada said Monday in a report.
The country needs to complete roughly 320,000 housing units annually from now until 2030, simply to meet the new demand that will arise over that period, according to RBC estimates. This would amount to an increase of nearly 50 per cent from recent completion levels – and it would require a record pace of construction.
If anything, Canada is moving in the wrong direction. There were around 240,000 housing unit starts in 2023, down from roughly 271,000 in 2021, according to figures from Canada Mortgage and Housing Corp. This doesn’t bode well for completions over the rest of the decade.
The RBC report outlines dozens of potential ways to mitigate the housing shortage – everything from speeding up project approvals to encouraging more people to enter the skilled trades. In some cases, governments are already moving to implement the solutions that are mentioned.
My takeaway: Housing starts are down? Really? After all the PROMISES from all three levels of government? Wait….did interest rates have anything to do with this? Double-wait…..did the three levels of government have any control over the promises and predictions they made, or where they just talking for the sake of talking?
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“RBC Urgers Canada To Prioritize Construction Skills In Immigrants To Tackle Housing Crisis”
Financial Post
April 8th, 2024
An outsider’s initial reaction: There’s that term “housing crisis” again. Is this a normal thing to talk about every day in this country? Maybe the news isn’t all bad, since bringing in skilled workers makes a lot of sense! Question though: is the government prioritizing skilled workers, or are they simply letting in anybody? Follow-up question: how does one tackle this catch-22 where there aren’t enough houses, but the government’s plan to bring in people to build houses means those people need houses too?
From the article:
Prioritizing construction skills in new immigrants and embracing innovative designs and building techniques top a list of recommendations from economists at Royal Bank of Canada on how best to tackle Canada’s housing crisis.
“Canada could need more than 500,000 additional construction workers on average to build all homes needed between now and 2030 — and even more than that in the short term to meet peak growth in demand,” the economists said in a report released Monday.
Despite immigrants’ potential to earn above-average wages and integrate quickly, immigrants with apprenticeship certificates and those who practise non-apprenticeship trades made up only 2.4 per cent of arrivals from 2016 to 2021, down from 9.6 per cent in the 1980s. The report argues for a realignment of Canada’s immigration system to focus on those skilled trades.
My takeaway: Reports, suggestions, and recommendations are only worthwhile if they are followed. Every bank and every think tank out there is saying the same thing, but the government continues to go in a completely different direction when it comes to immigration. Then again, this article should be about housing, but here I am talking about immigration. Does that say something about me or does that say something about Canada?
I honestly don’t know what is more negative:
a) This collective assortment of real estate-related articles.
b) My reaction to them.
Sorry! 🙁
But I honestly picked those articles with no agenda. I receive multiple news feeds and I picked all the articles that weren’t about “fluff and stuff,” ie. renovation stories, dream-home searches, etc.
It is possible that the media is just inherently negative because it sells. It gets eyes. It gets clicks.
But imagine what aliens from another planet must think? Or simply folks from Europe or Australia who search “Canada real estate” in a news feed and get these articles?
Is this a case of “It’s going to get worse before it gets better?”
Or maybe, “Thinks always look better in the morning?”
Ask anybody in my extended family what my mother’s catch-phrase is, and they’ll tell you, “Things have a way of working out.”
It’s simplistic, but up to this point, it’s been incredibly accurate.
Happy Monday, folks!
Ace Goodheart
at 12:09 pm
I’ve become a significant “housing bear” over the past year or so, watching things unfold here in Toronto.
I did live through 1989 and knew many people who were reduced from being “wealthy” land owners to living in their parents’ basements.
One person I knew had seven rental properties and a family home. By the time things had hit bottom in 1997, all were gone and he was back home with Mom and Dad.
I just don’t see how the situation we are seeing is sustainable. We are going to need higher taxes, for one. The Federal government’s finances are a mess and Trudeau and Freeland could care less. They borrow to fund core program spending, not seemingly aware that doing this causes a structural deficit which you cannot get out of, without eventually increasing revenue intake (ie, taxes) beyond the cost of the particular program (because you have to keep up with interest on the debt which you create to fund the program + the cost of the program itself).
There are going to be new taxes. There have to be. Otherwise we will end up like Chile or Venezuela. All of the debt has to be services, and that means increasing revenue (taxes).
This happened before with the introduction of the GST in 1991 to combat spiraling government debt. Debt must be serviced and taxes must increase to accomplish that.
So higher taxes mean people have less money to spend. How does that lead to higher home prices? Who is buying the houses?
Then we have the bond markets. Back when house prices in Toronto were on a never ending ascent to the stratosphere, the bond markets were being flooded with freshly printed cash from the BoC, which was “creating” money in lock step with the GoC’s bond issues. Trudeau and Co. issued 20 billion in new bonds, and the BoC “created” 20 billion in new CDN dollars, went into the bond markets, and purchased the government bonds. They kept doing this.
With all that cash flooding into the bond markets, the interest rate that you could sell a mortgage bond for, dropped dramatically. Remember, mortgage interest rates are set in the bond markets. They are always higher than the interest rates being set for government debt. So if CDN government debt is being bought up by the BoC at 0.25% interest, mortgage bonds can easily be sold for under 2%. It’s just supply and demand.
Now the BoC is dumping CDN government debt onto the bond markets at much higher interest rates (I believe over 4% currently) as they “adjust” their balance sheet (to avoid a currency crisis).
Trudeau and Co at the same time are dumping new government debt onto the bond markets as they deficit fund their ridiculous over spending.
So if we have government debt available for over 4%, who is going to buy mortgage debt at 2%? The answer is, no one. Nobody. You would have to be out of your mind to do that.
High government debt levels create high mortgage interest rates. Particularly when the interest payments on the government debt are being deficit financed (ie, Trudeau is just borrowing more money to pay the interest, it is not being paid from actual tax revenues).
What is going to happen is the classic debt spiral. As people realize that the government, and the residential real estate markets, are held up by massive piles of borrowed money, interest rates necessary to be paid to borrow that money, will increase. It doesn’t matter what the BoC does. You have to sell the debt to someone. If no one is buying, then rates offered on the debt have to go up until you find a buyer for it.
This will push down residential real estate prices. It happened in 1989 with the credit shock and the subsequent re-set of house prices, and it will happen again.
I see the current situation in Toronto as a “swan song” with houses being priced at far higher amounts than the market can actually support, and the houses just sitting and not finding buyers. Sooner or later this situation will start to collapse. It is already collapsing in the Condo markets (re sale and new build).
Rick Michalski P.App ACCI
at 7:42 pm
Absolutely laughably ludicrous!
Lindsay
at 8:36 am
First time commenter here.
Ace, you make a compelling argument. And I don’t have the education or life experience to refute those stats.
But I have no idea who to listen to. David makes a good argument too. And I listen to Appraiser.
There’s such a big contrast. Some people think the market is going to tank and some think it’s going to skyrocket. How and why is everybody at opposite ends?
Ace Goodheart
at 12:41 pm
I know that mortgage interest rates are determined in the bond markets and I know that the interest rate banks pay on mortgage bonds is always higher than the rate paid on government debt.
So it looks to me that interest rates on mortgages will stay elevated for the foreseeable future.
I also know that home prices and mortgage interest rates move in opposite directions.
The lower the interest rate on a five year term, the higher house prices will be.
If mortgage interest rates are increasing, home prices must come down.
It looks to me like we are at the edge of a cliff.
But as I said in my first comment, I have become a significant housing “bear” over the last year or so.
There are also plenty of housing “Bulls” still out there.
Different David
at 11:43 am
A very compelling argument. How does foreign investors who don’t care what happens or how much they overpay for their property as long as their money is out of China/Turkey/Iran etc. factor into your analysis? They are paying cash and are indifferent to interest rates.
Ace Goodheart
at 12:36 pm
At the moment, they (foreign investors) are effectively banned from purchasing real estate in Canada. If they already own it, they are heavily taxed.
So we are running on domestic demand only.
I just checked the prime rate at my bank today (big blue one) and it is 7.2%. So that is your mortgage interest rate if you are borrowing. Do the math on a 2 million dollar house with 20% down.
Unsustainable.
And the big budget reveal today is supposed to have higher taxes and more reckless, irresponsible spending.
Landlord84
at 12:43 pm
Hi Ace, late reply here. Appreciate the info, as I agree with some of it.
3 year fixed available currently at 5.2%. People will lock in for a shorter term these days hoping for lower rates in the future. Stock market is being valued as such.
serg
at 2:52 pm
150 years ago most population was rural and probably lived in their own homes. Urban people were a few and mostly immigrants and lived in tenements (at least in New York). Then economy improved and suburbs and white flight happened. Again most people lived in their own homes.
We may be seeing a new cycle. Already in Toronto most households, I reckon, do not own their dwellings. In America, corporations like Blackstone increasingly squeeze out first time buyers and buy SFHs and then rent them out. (David BTW did not write on this in Toronto – does it happen?) In Canada, government funnesl money into private corps to build rentals (instead of coops).
David many times said that not everybody is entitled to their own home in Toronto, and that could be another definition of the New Tenement Society. There was an article in Better Dwelling that RCMP expressed concerns about most young people not having their property as these “new life-time tenants” could be fuel for extremist movements.
So we need to buy more popcorn and watch.
Steve
at 11:55 am
Home ownership rate for Toronto was 51.2% and declining in 2021 (nationally 66.5%):
https://www12.statcan.gc.ca/census-recensement/2021/as-sa/fogs-spg/alternative.cfm?topic=7&lang=E&dguid=2021A00033520&objectId=7
The breakdown by age group is potentially more insightful however:
https://www12.statcan.gc.ca/census-recensement/2021/as-sa/fogs-spg/alternative.cfm?topic=7&lang=E&dguid=2021A00033520&objectId=7
I highlight this both to show that there is a decline in home ownership but also that while many would agree with you that most households don’t own…that’s still not actually true (yet) even within Toronto.
Serg
at 11:35 pm
Exactly. But pls keep in mind that those numbers are from 3 years ago. And many condos came online (tens of thousands) most of which are owned by investors, as we now know (just 10 years ago there was no such statistics!) These numbers farther dilute the ownership share, so I guess it is below 50% already.
Also note that Toronto is depopulating. Look at the recent census. Except the condo cores, ALL areas lost population. Boomers croak. And their houses are mostly – I guess here, there is no stats – snatched by investors. Blackstone, etc.
There is a myth about “Toronto population growing super-fast, and there is huge demand”. Nada. 10k a year for a almost 3 mln city. May be students, transients multiply – but the gov already plugged the leak, we will see in three years… they will fade.
Nick
at 5:24 pm
Ace that is a very well written post thank you for bringing all of that up. It strikes me of Argentina quite a bit and we all know, thats not a good outlook.
This is not something that any of the current party leaders can fix unfortunately as we will need complete fresh think on how we approach things and none of them so far seem to understand what needs to happen.
Mike
at 12:52 pm
David, should we expect Thursday’s blog post to be about today’s federal budget announcement? I hope you’re not watching the coverage live. Take a deep breath, relax. It’ll be OK.
David Fleming
at 9:26 am
@ Mike
I can’t. It’s so painful and so unfair. Which is ironic, considering the word “fairness” was mentioned over fifty times in the budget speech…
Steve
at 8:36 pm
Every level of government is almost clueless in incentivizing new home construction be it low rise, mid-rise or high rise. It starts with the land or rather more critically land with building permits. Purpose built rental high-rises completed in prime midtown and downtown Toronto locations in 2014-2019, required top-of market monthly rents, think $1,900 plus plus. Since 2019 project costs have escalated. Affordable for who?
The duplex to 4 plex idea is wishful thinking as about 95% of builders choose to build SFD McMansions, being downtown, mid-town or central suburbs like in Willowdale ( North York). A 4 plex builder cannot compete on land / site cost with a SFD builder. The economics do not work. Raising household incomes is the key or massive government intervention like the late 1980’s and early 1990’s. Mike Harris the Ontario premier by 1993-1994 and fed’s killed all applications affordable non-market, non-profit and co-op housing. Most build on the east side of Church Street where land owners cashed out on dodgy site locations.
Lastly most infill housing sites are owned by speculators NOT builders. These speculators want to cash in on the land flip nothing more nothing less. The hard part is for the builder especially small scale ones to complete a project with a profit. They are not interested in being landlords to get nickels and dimes of profit over several years.
The federal budget housing targets to 2031 are a joke and completely unrealistic, not going to happen not even close. I agree with nearly all of David’s opinion. The housing horse left the barn years ago. Many sites in the pipeline are just stuck in limbo.