While I do love writing these multi-part posts, I would love them a lot more if I finished them on time!

My goal of completing both posts by the start of the long weekend was never even close, but at least it came in handy as an excuse when I really, really needed to get out of the house on Monday.

Parents, you know what I mean.

Sometimes, heading into the office on a holiday isn’t such a bad thing?

Condolences and congratulations to those who sent their kids off to “the first day of school” on Tuesday, and by that I mean the first day of school, ie. those who sent four-year-olds to Junior Kindergarten.

That was one of the toughest experiences of my adult life.  Maybe I’m just a big softie, but walking away from a crying child who is begging you not to go, and from behind an N-45 mask, no less, was absolutely gut-wrenching.

I cried as soon as I got into the car.  True story.

Now, that little girl is going into grade-two, or “second grade” as they call it south of the border, which always makes me wonder why there’s a difference.

My son is still one year away from Junior Kindergarten, but as a February baby, he’ll be more than ready by the time next September rolls around.

Tuesday was a fairly busy day for the market!

Checking out my MLS home page, I see over 100 new listings in C01 and C08, aka “downtown,” but still only 14 new listings in C09, C10, and C11, by comparison.

This continues the theme of “spotty” inventory in the market, where some neighbourhoods or price points get inventory, but others don’t.

On Tuesday, we looked at the first four “Burning Questions” for the fall market, and inventory was one of them.

Now, let’s run through our next six questions, keeping in mind that some of these are worth a multi-part blog series, but we need to address them in an expedient manner…

5) Will we actually see the fallout from increasing interest rates?

I suppose this depends on who you ask!

Guess which article came through my news feed for a second time last week?

This one:

“Barrie Area Woman Watches Mortgage Payments Go From $2,850 To $6,200, Forced To Sell”

Ugh.

Just when I thought I was done with that.

And for those who were on vacation all summer, I wrote a very cynical post in response to that article, here:

“Warning: ‘Variable’ Can Result In ‘Variability'”

Yes, there are people who’s mortgage payments are increasing, but no, this article should not be the poster child because as I wrote in my blog, the numbers don’t add up and the owner likely had a line of credit or secondary loan that wasn’t noted in the article.

The TRB readers had some great responses to that blog post, and some of them didn’t pull any punches!  I don’t know if I expected the readers to have sympathy for variable rate borrowers who had amnesia in 2023 and forgot that they made a choice two years ago when they obtained a mortgage, but there were certainly some “looks good on ‘ya” comments.

Throughout 2023, and perhaps 2022 for that matter, we’ve heard a lot about how increasing interest rates are going to cause mortgage delinquencies and eventually force a lot of home-owners to sell.

But is that going to happen this year?

Will we see it finally happen this fall?

The CMHC publishes data for mortgage delinquencies, and while we only have the Q2 data (ie. up to June) in hand, we can compare the current rate of 0.15% to each quarter over the past decade:

A critic will argue that mortgage delinquencies take time in response to increasing rates, or rather that it’s a “lagging indicator.”

But how much need it lag?

Will we see the 0.15% rate increase in Q3 or Q4?  And if so, by how much?

Even if mortgage delinquencies doubled, we’d still only be back to 2019 levels.

As for property owners who are “forced to sell,” I’ve seen a few.

One of my investors was on a fixed-rate mortgage and his mortgage rate is going to skyrocket as of October 1st, so he sold the unit in the summer to avoid being significantly cash flow negative on the property.  In fairness, he’s been slowly exiting the market for some time, as we’ve been selling his units for the past year.  But this is the first time he’s decided to sell a unit before the tenant vacates, and the interest rate increase was the deciding factor.

I’ve read other headlines about investors selling off their condos, but mainly in second or third-rate online publications, so I’m choosing to describe what I’m seeing out there in the market rather than look at what other “media” outlets are saying.

In terms of an actual end-user who is being forced to sell because of higher interest rates, I haven’t personally encountered this year.

But it’ll happen.

Not as frequently as the media makes it out to be, and not with as much fanfare as that ridiculous article noted above, but surely there will be home owners that simply can’t afford their mortgage payments anymore and need to sell.

Will it be enough to dump inventory into the market and change the ratio of supply and demand?

Unlikely.

But it’s something we’ll surely be monitoring this fall…

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6) What role is City Hall going to take in housing construction and affordable housing?

This is one of those “can of worm” topics which also could end up being a multi-part blog, but for now, let’s just say that this is a question we’ll be asking throughout the fall and beyond.

It didn’t take long for new mayor, Olivia Chow, to roll out a housing plan.

The first thing she said, however, was that she wouldn’t be utilizing her “strong mayor powers,” bestowed upon her and other mayors by Premier, Doug Ford.

But then she went on to discuss her plans…

She said she would double Toronto’s rent bank and triple the amount of people helped by the Eviction Prevention in the Community Program.

She wants to establish a Secure Affordable Homes Fund.

She wants to establish a Renters Action Committee which would be comprised of housing providers, city staff, tenants, and tenant advocates, and all the while she has clamoured for “real” rent control, whatever that means.

She wants to improve support for the homeless.

She wants to provide a one-time “top-up” in rental supplements.

But the big news came two weeks ago when Ms. Chow announced her “first step” toward building 25,000 affordable rental homes in addition to those already planned for the city.

“Mayor Olivia Chow Sets Out ‘First Step’ In Affordable Housing Plan, Ups Target By 25,000 Homes”
Globe & Mail
August 24th, 2023

From the article:

Toronto Mayor Olivia Chow presented on Thursday what she called a “first step” in her bid to build 25,000 affordable rental homes, in addition to those already planned for the city.

In a motion backed by the city’s executive committee, Ms. Chow outlined a plan to get Toronto’s housing-related agencies working together on new public and community housing.

“I want to make sure they co-ordinate it, that there’s a bit of a one-stop-shop approach,” she said. “It’s the first step.”

The motion proposes revised housing goals to add 7,500 affordable homes – of which 2,500 would be new rent-geared-to-income units – and a new target of 17,500 rent-controlled homes.

That’s on top of the 40,000 affordable rental units the city has already committed to building by 2031.

So far, her fans are singing her praises.

There are plenty of naysyers, and keep in mind, Ms. Chow won the mayoral race with a little more than a third of the vote, but everybody and anybody has an opinion on how afforadble housing should be built.

Here’s a good read from a contributor that I typically disagree with:

“Olivia Who Must Move Fast To Meet New Affordable Housing Goal”
Matt Elliott
September 4th, 2023

This column surmises that the answer to affordable housing lays within lands owned by the TTC and the Toronto Parking Authority.

From the article:

Of course, this begs the question, “How does the city intend to pay for this, and whom are they going to tax?”

That’s a whole other issue, as is the budget shortfall, and the bleak future of the city’s finances, but for now, let’s focus on the positives!

Whether you liked and/or trusted John Tory, and whether or not you thought he would spearhead a massive campaign to build housing, he’s out.  And Olivia Chow is in.

We’ve had enough planning.  We’ve had enough discussing.  There have been too many studies.

Let’s get housing built.

Olivia, you’re up!

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7) What is going to happen to the pre-construction market for both houses and condos?

It ain’t good, folks.

And why should we expect it to be?

Developers who own land and can sell or build properties today, tomorrow, or the day after, will look at their options and decide accordingly.  And right now, it’s very expensive to build housing!

Housing reporter, May Warren from the Toronto Star has been covering this angle for the past few weeks and there are two good reads on this:

“‘If There’s Ever A Time For Action, It’s Now.’ GTA Sees Lowest New Condo Sales In 23 Years In July.”
Toronto Star
August 23rd, 2023

From the article:

And then just one week later, we were given this to chew on:

“‘It’s Only Going To Get Worse.’ Where Thousands Of Condo Units In THe GTHA Are Delayed”
Toronto Star
August 31st, 2023

From the article:

Like I said, it ain’t good, folks.

And while some people are cheering, “Yay, no more ugly condos,” they don’t understand that the path to “affordability” in the future is via supply.

This will be worth monitoring in the next four months…

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8) Is the Greenbelt hullabaloo much ado about nothing, or is this merely the start of a massive scandal?

Can of worms?

Nope.

This is something worse.

Google, “What’s worse than a can of worms?” and you’re given Pandora’s Box.

I don’t know.

But I do know that the public loves a good scandal, and this has the makings of a big one!

My cynical take, however, will remain unpopular, and goes something like this:

The Greenbelt, however, important, is not holy land and does not date back 5,000 years.  It is simply land that was designated “untouchable” in 2005.

I would love to know what percentage of the general public believes that the Greenbelt is public land, since the public (not those on TRB who are about to lambaste me for my comments) has proved to be exceptionally uninformed.

The designation of Greenbelt lands seemed arbitrary and capricous.  Farmers who have had the land in their family for one-hundred years were suddenly told, “For the greater good, you and your children, and your children’s children may never develop this land.  So keep getting up at 4:00am and growing corn, please and thanks.

Yeah, unpopular, I know.

But as a cynic in the 100th percentile of cynics, I feel this viewpoint is necessary for context.

Now, as for the scandal, I believe it.  One hundred percent.

Did the Premier’s office work with, in some way, shape, or form, developers in advance of opening the Greenbelt?  Absolutely!

But I’ve come to realize, sadly, that this is how politics work.  I’ve come to accept it as well.

If there’s a paving contract available through a municipality, you’re kidding yourself if you don’t think this will be given to a friend or family member of somebody within the government of that municipality.  Maybe there’s no bid process.  Maybe it’s just awarded, straight up.  Or maybe there’s a bid process and the friend/family is given an inside scoop.

But this is how politics work at every single level.

Voltaire famously said in 1705:

“Politicians are usually nothing more than illustrious criminals.”

Yeah, probably.

But in the spirit of inclusivity, since this is 2023, after all, can we agree that this applies to all parties?

Liberals, Conservatives, NDP, Green, or whatever fringe party you want to align with.  They all do this.

I don’t want to bring up scandals of the past from other parties, so let’s just say that this Greenbelt scandal doesn’t surprise me.

Should it or could it take down the party?  A recent poll by Abacus Data says that support for the Doug Ford government is dropping.

Personally, I don’t care if an already-rich developer gets slightly richer, but I know that opinion will be wildly unpopular with many out there.  I just don’t see housing being built unless somebody is massively profiting.

Then again, we seem to have reached a point where people no longer understand the roles of the public sector and the private sector.

Noted housing critic, Christopher Hume, recently said:

By now it should be clear, the development industry is not going to solve the country’s housing crisis. It has no interest in building anything that doesn’t make a profit.

Wait.  What?

Since when are developers not-for-profits?

Since when are private companies not expected to make money?

Walk into your local auto body shop right now and tell them to run their business in a way that loses them money.

Go into a restaurant for lunch and tell them you’ll pay them half of what’s owed, because you’re sick of the owner trying to make money on serving sandwiches.

Look, I know I’m going wildly off topic here as it pertains to the Greenbelt scandal, but my cynical side sees the way society’s outlook is shifting toward people who have money, or seek to make money, being evil, and when it comes to building housing, there’s just no way that it gets built without a developer profiting.

Should a developer get the inside track on a major re-zoning initiative?

Of course not!

And housing minister, Steve Clark, fell on his sword.  This came after Clark’s chief of staff, Ryan Amato, fell on his sword weeks earlier.

Kind of reminds me of when Bill Morneau fell on his sword for Justin Trudeau?

Ugh.  Politics.

Dirty, greasy, grimy, and sleazy.

It’s a sad state of affairs when this is how we get much-needed housing built in Toronto.

“Will this scandal fade as the fall moves on?”

Not even close…

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9) Will public sentiment towards all-things real estate continue to grow negative?

Tell me that I’m making this up.

But tell me that you haven’t noticed a growing resentment toward home-owners, investors, real estate agents, and all people involved in housing over the last couple of years, and I’ll tell you that you’re not paying close enough attention…

As I said in Question #8 above, there’s been a huge shift in public sentiment of late when it comes to those that have, or as I described above, those that aim to obtain.

In previous decades, not much was thought about home ownership in Toronto.  It was a given.  Toronto was “Buffalo North.”

But today, owning a home in Toronto has become a status symbol, not unlike New York or London.

Home ownership is celebrated and immortalized in Toronto Life and chastized and vilified in BlogTO.

The words “real estate” affect people in many different ways.

Some perk up instantly and think maybe there are some cute photos of a pretty, renovated kitchen.

Others cringe, shudder, and tune out.

If Toronto had a second hockey team, I still don’t think we’d see as much of a divide between the population.

This point is short and sweet.  Just remember I said this the next time you hear people arguing about real estate…

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10) Will inflation hit the target of 2% this fall?

I put this question last on the list because I don’t want to ask it, we already know the answer, and because we spent so much time talking about inflation in 2022, that I really wanted to leave this topic out.

But we can’t.

Because inflation is driving interest rates, and interest rates are driving the market.

Will inflation hit the Bank of Canada’s target of 2% this fall?

No.

Almost certainly, it will not.

But while many people, sometimes myself included, will continue to ask, “Why is this 2% rate so important?” we have to remember that we do this out of equal parts frustration and denial.  Because if we really sat down and thought about it, we’d know that 2% is, always has been, and always will be the gold standard.

For those who need more education on this subject, I high recommend this article from the Council of Foreign Relations:

“The History And Future Of The Federal Reserve’s 2% Target Rate Of Inflation”

Yes, it’s an article about the US Federal Reserve as opposed to the Bank of Canada, but the theory is the same.

And as the article explains, the 2% target originated in New Zealand, of all places, so if Canada is taking the lead from America, than consider where America got the idea from in the first place.

I would also recommend this press release from the Bank of Canada, originally posted in February of 2023:

“Our Commitment To 2% Inflation”

Three key quotes:

“Returning to the 2% inflation target will bring back the stability Canada has known for the past 30 years, to the benefit of all Canadians.

“If inflation stays above target for a significant amount of time, then high and variable inflation will likely go hand in hand with a less efficient, more distorted economy.”

“The bottom line is that we shouldn’t be too concerned if Canada follows a slightly different path to normalization than our counterparts. What matters most is getting all the way there.”

And just for a refresher, here’s the last ten years’ worth of inflation data:

Two percent, you say?

Well, you have to hand it to the Bank of Canada; they did a very good job from 2013 through 2020.

No, we won’t see inflation drop to 2% in September, October, November, or December, but you can most certainly believe that it’s going to get there, come hell or high water.

Phew!

What a mouthful.

Well, that’s it for me this week, folks. Next week, I’ll probably take a look at the August TRREB numbers, even though they’ll be somewhat old news by then (not to mention, I’m sure the readers will have discussed them this week as well).

But for now, I welcome your comments on the top ten topics and burning questions this fall, as I see them!