00:00:00.000We've really never seen a long grinding housing cycle.
00:00:02.040And what's alarming to me is we're now at the point where I'm seeing power of sale, kind of the equivalent of what the Americans may recognize as foreclosures, court-ordered sales that are selling at half of the previous selling price from 2022 in certain markets.
00:00:18.420So we are seeing certain pockets of real price stress here in Canada that I wouldn't have even thought we would see, even being as concerned as I was in kind of 21-22 about the direction of the market.
00:00:30.000this has fallen more than I would have expected. Today on True Patriot Love,
00:00:38.580Under the Pillar Housing, I have Ben Rabideau here with me. And Ben is a founder, is the founder
00:00:45.580of Edge Really Analytics. And I got the opportunity over the weekend to go through
00:00:50.220his last report. And for those of you who love real estate, and I do, and Ben, welcome.
00:00:56.300thank you i uh my background ben so it's very interesting to me because of course you know
00:01:03.660growing up in an italian family we were always building things and the first thing i did uh
00:01:09.020after i got my cpa is i got into commercial real estate um and in my industry i ended up building
00:01:15.340about a billion dollars in assets uh undertow and i had companies that actually went out and
00:01:21.900build properties for other people and and it was a it was a wonderful pastime for years you know i'm
00:01:28.140i'm getting up there in age right now but for years i loved it and i the construction business
00:01:34.140um was always near and dear to my heart and because my father had started up uh started
00:01:39.260off on the residential side i spent a lot of time with him you know months years with my uncles and
00:01:46.060my dad uh renovating houses so you know welcome to the show you know i took a look and i really
00:01:52.860enjoyed your report you know they sent me a note last night i really enjoyed going through it
00:01:57.580and let's kick let's jump into it because it really does um highlight some of the things i've
00:02:03.180been saying on previous shows and the last show i did on real estate i had uh chris cepito from real
00:02:11.340the real estate group come in they just got bought out or they bought out remax i had him come in and
00:02:16.300i sat down with him and i said chris here's how i see it and you know what i think you and i are
00:02:20.940kind of on the same page on the way we're seeing this uh go down so let's kick it off tell us a
00:02:27.020little about your your company yourself and then tell me about interest rates for a while yes
00:02:33.900Certainly. So I founded an institutional research firm back in 2011. So that's called North Cove
00:02:41.500Advisors, still operational today. And we work with a number of the largest asset management
00:02:46.460companies globally. And for them, I track Canadian macroeconomic trends with specific focus on
00:02:52.060housing and consumer credit. In 2021, I got the idea to take that same institutional quality
00:02:59.660research and make it accessible to real estate professionals somewhat selfishly with the idea
00:03:04.140that I could sort of build out my network and gather you know important kind of frontline intel
00:03:08.620to help inform my institutional clients and as these things tend to go you you start a business
00:03:13.920with one directive and then it it sort of weaves and it becomes something you didn't anticipate and
00:03:18.460I've discovered that actually I really enjoy the speaking element of edge realty analytics that the
00:03:22.920the conversations I'm having with a lot of real estate professionals and so edge realty analytics
00:03:27.220now takes up a good chunk of my time. And we produce several recurring monthly reports.
00:03:33.540And one of the things we do try to track is the direction of interest rates. And that's probably
00:03:37.300a good place to start because we are in somewhat in limbo right now. It's a bit of a strange time.
00:03:42.420Had we had this discussion eight or nine weeks ago, I think my outlook would be a little bit
00:03:46.180different. I think we were on sort of a glide path to slightly lower rates, not dramatically
00:03:52.180lower. We weren't going back to zero interest rates, but I think you could have had a couple
00:03:55.380more rate cuts it's really it's really different today because the conflict in iran i don't know
00:04:02.260if we're calling it a war what are we calling it now so the conflagration in iran is is upending
00:04:06.820global energy markets yeah and it's a real problem so there's a couple things happening right now we
00:04:11.620know that um we are going to get some very hot inflation readings here in canada the next few
00:04:15.860months we can see that there's there's some indicators that we can track that that tell us
00:04:20.020where inflation is going and one of them is the industrial product price index and the other is
00:04:25.220the raw materials price index this is like price index of goods that are the raw materials that
00:04:30.340are going to the factories well if that spikes you know that down the road they'll try to pass
00:04:34.580that cost on the consumers well we just had one of the hottest readings in 40 years last month
00:04:39.380so big monthly increase in raw materials we know that's going to filter through to end pricing
00:04:44.660so we are going to see next month we'll probably see cpi over three percent the month after that
00:04:48.740we're probably three and a half like it's it's going to be a a pretty dramatic creep higher
00:04:53.380Now, if you're the Bank of Canada, it's a tricky spot because they can raise interest rates all
00:04:58.220they want. They're not going to reopen the Strait of Hormuz. So what they've said very clearly is
00:05:02.860they will try to look through the initial impact of inflation. But what worries them is what we
00:05:10.460call inflation expectations. And this is a bit of a strange concept, but I'll just explain it very
00:05:15.520quickly for the listeners and viewers. There's an element of inflation that's psychological.
00:05:20.620and by that I mean if you believe that the price of goods and services are going to increase a lot
00:05:26.320in the next year you might rush out and buy more today so if you're like a manufacturing company
00:05:31.340you're afraid raw materials are going to go up you're going to stock yourself today if you're
00:05:34.580going to thinking of building a new deck and you think the price of lumber is going to go up 30
00:05:37.960next year maybe you borrow off a HELOC and you build it today so when you multiply that dynamic
00:05:43.740across an economy when people fear future inflation they spend more today and that in a roundabout way
00:05:48.480creates inflation. That's the pernicious effect that we're facing. It's not so much the war in
00:05:53.200Iran that's got the bank kind of concern. It's how that might influence consumer spending behavior.
00:05:59.780And so the bottom line here is, you know, two months ago, I would have said direction of interest
00:06:03.900rates is lower. Today, I think that if inflation expectations start to trend higher, we will see
00:06:10.180rate hikes later this year. And that's a bit of a concern. Right. Yeah, for sure. Well, you know,
00:06:15.680ben during covid we saw you know your example is is bang on and we saw it right because as people
00:06:22.640decided were worried about supply and supply chains they went out and hoarded a bunch of
00:06:27.520goods drove up prices and you know that's exactly you know when we start to see oil and gas
00:06:33.600challenges like we're seeing now um you know we we just had a similar show uh where we talked about
00:06:40.320oil and the effects of this on canada and a lot of it was interesting because a few of the guests
00:06:45.440that came on uh we're a little surprised at the number of impacts this has so far away from the
00:06:51.760strait of her moose and i was like no this this resonates straight through the economy it makes
00:06:56.640it right to your dinner table to your recreation to anything you're doing to your business which
00:07:01.920then drives you know uh huge inflation and you know that's why us not foreseeing this is so crazy
00:07:11.600to me right now so you know and i might talk to the listeners all the time about you know in 1973
00:07:18.000we had this same identical thing almost happen in canada with the embargo um and then when it was
00:07:24.080done and we started petro canada and then we sold petro canada and then we seem to have kind of
00:07:28.880turned our back on the fact this could ever happen again i find that so bizarre because we did have
00:07:35.040a national strategy for such an occurrence and that took place but yeah it's really interesting
00:07:40.160and well it's a great point though if i can just jump in because one of the things that's frustrated
00:07:44.480me is in the last few years this sort of especially coming out of covid this view that like
00:07:49.280we were past the need for traditional hydrocarbon as an energy source and that it was this kind of
00:07:54.400terrible thing that we should be ashamed of as canadians that we were producing and that's it
00:07:58.720i mean nothing could be further from the truth we're probably another 20 years away from peak
00:08:02.320oil demand and that's going to be a long plateau after that we're going to be using hydrocarbons
00:08:06.320for both of the rest of our lives anyways um and so the option is do we produce it ethically here
00:08:11.760in canada to a higher environmental standard or do we outsource it to other regimes including
00:08:16.640regimes with terrible human rights records and then import that oil here like to me this is a
00:08:21.200no-brainer but we kind of lost our minds as canadians in the last few years and we we
00:08:24.800villainized what has been our most important industry yeah yeah we definitely did you know
00:08:30.160dan mctagg comes on the show once in a while same thing he just he just goes off um so no i appreciate
00:08:36.080that hey talk to me about rents because this is an interesting one i was just uh you know uh
00:08:42.320working on a show talk about uh rent first buy um so talk to me about rents because this is an
00:08:48.240interesting one because all you know uh coming out of covert you know everyone was buying as
00:08:52.960many properties as they could they were trying to lever one after another you know even my own
00:08:58.400accountant who i just saw for my own personal tax uh submission you know i i went in he says oh man
00:09:04.560he says you know i got eight i got eight houses now you know and i'm like dude eight houses like
00:09:09.520what are you doing right and uh are you getting any rent for them and he's like yeah no they're
00:09:14.080all rented i said well just you know keep your fingers crossed so take me through the rent
00:09:19.040scenarios right now fascinating story um and and one of the yeah one of the crazier things that's
00:09:26.640happening in the broader canadian economy i i'll just say up front i'm very negative on rents
00:09:30.560negative in the sense that rents themselves are going to trend lower that's fantastic if you're
00:09:34.640a consumer and a renter it's also in a roundabout way it's very good for the next generation of home
00:09:39.360buyers right a lot of the challenges for first-time home buyers is saving the initial down payment
00:09:44.080and the fact that rents are so high is a real hurdle so i actually view it that that falling
00:09:48.800rents are a good thing we've seen falling rents now for most of the last year and a half no nobody
00:09:52.560saw that coming this was something i was pounding the table on a couple years ago um that people
00:09:57.200would be surprised how quickly the rental market cools. So why did I come to that conclusion and
00:10:01.780why am I confident that this trend is going to continue? So you have to go back to the post
00:10:06.040COVID population boom. We discussed this very briefly off air. In 2022 or 2023, I testified
00:10:13.920to the Standing Committee of Finance on the cost of living. And one of the things I flagged is,
00:10:17.940look, the immigration policy at the time was just absurd and it was disproportionately impacting
00:10:23.460the renter cohort, because you have to understand that peak in Canada in 2024, population grew by
00:10:29.7001.3 million people in a single year. 800,000 of those were what we call non-permanent residents.
00:10:41.820They're all renters. So another way of saying it is we dropped 800,000 renters in the population
00:10:47.340in a single year, and we dropped two and a half million over a couple of years. Well,
00:10:51.940like, of course the rental market is going to go crazy. So we saw a dramatic run-up in rents. It
00:10:56.340was unfair, disproportionately hurt low-income Canadians. One of the worst policy blunders,
00:11:02.120I think, in the last 50 years in Canada. Crushed the Canadian consensus on immigration. It's going
00:11:06.640to be a generation to put those pieces back together. Now, concurrent with that, though,
00:11:12.520the government, to their credit, rolled out some programs that would heavily incentivize
00:11:19.040the construction of rental properties. And that is probably been the most successful government
00:11:26.100program in history with regards to bringing new supply to market. So if we take a snapshot today
00:11:32.140of what's currently in the construction pipeline, there's about 205,000 rental units being built
00:11:37.460across the country. That's equivalent of about 7.5% of the existing rental stock. So we're going
00:11:43.200to grow the rental supply by 7.5% nationally. That does not include the condo units that are
00:11:48.280going to become rentals they're just purpose-built rentals in the pipeline it's a ton of supply so
00:11:53.300kudos to the government for getting one thing right the problem is we've now unwound some of
00:11:59.280those immigration policies and now rather than adding a bunch of temporary residents we're seeing
00:12:05.400declines in that cohort and not small declines either we're talking 400,000 annual decline in
00:12:11.540a key cohort of rental renter demand so now you have a confluence of factors where the government
00:12:16.620is trying to reduce the number of temporary residents in the country. That is the key source
00:12:21.340of incremental rental demand. And at the same time, we are about to see a wall of supply in the rental
00:12:28.400space come online in the next year and a half or two years. It's the perfect storm for the rental
00:12:32.720market. And so, you know, perfect storm in a bad way, right? So we will continue to see rents grind
00:12:38.640lower in some places quite dramatically. And where I do worry is, you raise an important point that
00:12:46.060in that kind of post COVID housing craziness that we saw, we know that a lot of, a lot of that
00:12:53.120increase in demand came from investors. Um, I wonder as we go forward, especially through this
00:12:58.520year, we have a lot of mortgages renewing this year at higher rates that gets worse if we get
00:13:02.500bank candidate rate hikes. So now you have a situation where people are going to be renewing
00:13:06.440at higher rates and the rents are falling. To me, that's a bad setup for kind of some of the
00:13:12.600smaller landlords that bought in that kind of 21 to 23 window yeah you know it's interesting i tell
00:13:19.140this story and i've told it a few times on different shows so i was in the states during
00:13:24.180the mortgage meltdown and uh i had uh i was living there and i had a business and quite frankly i saw
00:13:31.600the the huge shocks that hit the market at the same time and this isn't the same but it has some
00:13:37.220you know it's a weird set of circumstances that are converging and if if you look at the the show
00:13:43.600i did before i came on with you we were basically talking what to do with 2.3 million uh immigrants
00:13:52.060who are waiting to see their next step in canada they're not going to get pr and what do we do
00:13:56.980where do they go how do we help them transition back to their home countries what do we do
00:14:01.580So to your point, you know, it's a storm that drives rents the opposite direction of what these investors wanted.
00:14:11.180And for those people who got out and started putting together these multiple, I call them pancake mortgages, where they mortgage off each other, they're sitting there like as these people are leaving, their houses are empty.
00:14:24.400And, you know, I looked at your report last night and, you know, you have a slide.
00:14:30.020to me it's it's actually so telling it's it's asking rents are now negative in all six of the
00:14:37.220largest uh metros uh over the past two years so so basically it's showing you know the chart shows
00:14:45.620that basically rents are just going down down down in every metropolis in canada that that can't be
00:14:51.780good and it can't be good for those people who now are uh got out there and you know we kind of baited
00:14:56.580them a little right we brought these people in we had this open immigration system so then a bunch
00:15:01.140of people went out and they started buying houses to rent them out uh you know said okay no matter
00:15:06.500what you know like uh like my dad used to tell me and i used to argue with him no no you know
00:15:12.420no matter what uh housing prices are always going to go up and i'd say no they don't always go up
00:15:17.860um i was in a place once in in florida in the panhandle florida and dad i saw it go the opposite
00:15:24.740away right so you know i've lived through a meltdown so i know what that's like but
00:15:30.020well can i jump in because i think you're absolutely right canadians we have been conditioned
00:15:34.500to every housing cycle in the last 20 years being very short and very shallow like the the financial
00:15:40.100crisis was nothing in canada it was a six month affair and within a year we were back to record
00:15:44.740high house prices covid was nothing right so we've really never seen a long grinding housing cycle
00:15:49.860And what's alarming to me is we're now at the point where I'm seeing power of sale, kind of the equivalent of what the Americans might recognize as foreclosures, court-ordered sales that are selling at half of the previous selling price from 2022 in certain markets.
00:16:06.500So we are seeing certain pockets of real price stress here in Canada that I wouldn't have even thought we would see, even being as concerned as I was in kind of 21-22 about the direction of the market.
00:16:17.780this has fallen more than i would have expected yeah no for sure hey let's let's move over for
00:16:24.360a minute to to basically uh housing you know single dwelling residence and you know i looked
00:16:30.600at your chart and uh you know the reason i mentioned you know that uh i would never do it
00:16:36.240but quite frankly i know some guys are still in it and they're still trying to make it but
00:16:40.040single family dwellings oh my goodness the bottom dropping out right now and you know
00:16:47.560previous show that i did with chris i talked about it i said you know it's a little bit of the if you
00:16:52.760look at demographics you know and i love demographics i'm a cpa by trade um and i like
00:16:58.200numbers uh you know you look at the aging population combined with the aging of all our
00:17:05.480housing inventory you know you got homes that are 60 70 80 years old in the market
00:17:11.720you know how long can they stay you know can you renovate them can you do something with them
00:17:16.520you got housing prices you got the failing condo market that's kind of competing with you in that
00:17:22.360market you know where do you see it all going and i guess i i know this is a tough question but i'm
00:17:28.280going to ask it and i ask everyone ben where is the bottom here there's a lot to that question
00:17:34.920yeah well look first of all i think we need to be really careful to break it down regionally
00:17:41.160We're in a strange time in Canada where if we look at the headline house price index nationally, we're down about 20% from peak, which is already the steepest house price correction for peak that we've seen in four decades.
00:17:56.020But having said that, we have parts of the country, particularly Saskatchewan, parts of Manitoba, Quebec, parts of Atlantic Canada, where house prices are at record highs and still rising high single digits every year.
00:18:08.640And that's being offset by this this tremendously deep housing cycle in southern Ontario and BC. So it's a really strange dynamic where it's it's hard to make blanket statements about about where housing broadly is heading. What I would say is on a short term basis, I think that we're probably going to see like we're now at the point where I think we can we can make a case that we're close to a bottom here in Ontario.
00:18:37.620That's not to say I think prices are going to come rocketing back. I think if you look at the
00:18:41.420last real housing cycle in the late 80s and through the 90s, we had about a two-year grind
00:18:46.300lower, two, three-year grind lower in pricing. And then it basically kind of moved more or less
00:18:50.720sideways for five or six years. And I think that's a decent way to think about how these cycles tend
00:18:55.340to play out. We're at the point now where I think prices are going to start to form a bottom. Maybe
00:19:00.600it's another 5% lower, maybe from here. And then I think it's going to start forming bottom. The
00:19:06.660reason I say that and I'm focusing on Ontario specifically I think um it's a different case
00:19:12.040to be made in BC in which we can talk about but but as it relates to Ontario what I'm seeing is
00:19:16.540when we look at inventory trends resale inventory they're actually starting to
00:19:20.400to stabilize and they're actually starting to fall in a lot of big metros in Ontario so the number of
00:19:24.440homes listed for sales coming down home sales are now coming in higher than they were a year ago
00:19:28.260but most importantly to me is if I look at what's under construction for single family
00:19:33.420we're back to 30-year lows. So there's no new supply coming. And that's generally,
00:19:39.260once you see that, you're generally pretty close to a bottom. And so we'll see. The affordability
00:19:48.160picture is not great, but it has improved dramatically over the last few years. A lot
00:19:52.640of that gets upended if we get a big, if in fact the Bank Canada hikes rates a few times later this
00:19:57.140year, we could be having a different discussion in six months' time. But if I took a picture of
00:20:02.040market today i think we're probably going to see the market start to stabilize in ontario now bc
00:20:07.800is a different story i don't know how much your viewership is out in bc um listen i'll just tell
00:20:13.240you i i think i think the the provincial governments uh allowing undrip um to be
00:20:21.160codified into law which is the the united nations declaration of the rights of aboriginal peoples um
00:20:26.920Um, and forcing the legislative branch and the judicial branch should say to, to sort of
00:20:32.400interpret all laws through that lens has been disastrous. So we had a major decision last year
00:20:38.940where the courts deemed that Aboriginal groups would have coexisting title on land. Like what
00:20:46.400the hell does that even mean? Like if you're a lender, you can't lend on something if you don't
00:20:50.880know who owns the collateral. So the way I see it, BC is a very different situation until they get
00:20:55.480that resolved and you get clarity that that province it's just going to continue to grind
00:21:00.660lower and i hate to say it but that province is uninvestable right now i mean that is a catastrophe
00:21:04.480i don't think canadians have yet appreciated how far down that rabbit hole they've gone
00:21:08.480that's a whole separate discussion if we then take a step back i think alberta's going through
00:21:13.040sort of a normal cyclical adjustment the price is going to grind a little lower there's a lot
00:21:16.880of supply coming very much in contrast with ontario alberta's got a lot of supply coming
00:21:21.040and i think that's broadly similar with quebec as well they're in a bit of a cyclical adjustment
00:21:24.680but but so if you're looking for a bottom i think ontario is close bc has zero bottom until they get
00:21:28.920this figured out and that's kind of where we're that's kind of where we're at you know it's and
00:21:33.880i and i interesting because i i'm praying that you're right so and and yeah i hope you're right
00:21:39.880because i you know i have friends and family that uh still own real estate here in ontario
00:21:45.240um and so you know fingers crossed my my big worry right now a little bit is kind of what you
00:21:51.320mentioned at the beginning of that uh at the beginning of the segment on single family dwellings
00:21:57.560and homes um you know as we saw kind of people retiring so covet was this weird time when uh and
00:22:04.680i was building a house and quite frankly it was a weird time because you saw all these people the
00:22:10.680older baby boomers who were smart to get out were starting to exit and they were starting to move
00:22:15.240to these other you know pei new brunswick they were starting to you know and so you saw this kind
00:22:21.560of boom happening and all these other places you know given you know that a large portion of our
00:22:27.000wealth is held by that generation and held by a small amount of people in canada you know all of
00:22:32.040a sudden you start to see all those people exiting right so now they actually their kids their kids
00:22:37.320are kind of left but their kids are left with a smaller amount of uh funds because quite frankly
00:22:43.800the parents are giving some money to them right now to get started so you have a really odd
00:22:48.600dynamic that is my biggest concern for the housing market in in bc ontario bc forget about it quite
00:22:56.040frankly as you mentioned i i think that issue they've went from uh over inflated kind of you
00:23:02.360know market based on all these weird uh i'm going to call them sam cooper effects and then quite
00:23:09.160frankly into what they're doing now with the indigenous but but the rest of the you know
00:23:14.560Ontario and and even parts of Quebec I think they're seeing a little bit of uh the migration
00:23:20.300of the baby boomers I'm hoping you know the kids come back I'm hoping the kids stay um and that we
00:23:28.060won't see a similar like a a more uh rapid decline than what you're saying but that is my worry right
00:23:35.700now I do I do stress about the fact that as wealth leaves the market wealth is going to other
00:23:41.300countries wealth is finding other places to live and that's going to leave quite a significant void
00:23:46.580in the major cities of Canada right now can I put some numbers to that because I think you're
00:23:51.180you're you're touching on something that I think is a is a longer term theme in Canada so when you
00:23:57.620asked me about housing I was very clear to say in the near term this is what I think things might
00:24:01.520look and what I near term I mean in the next year or so I think we could see everything I said
00:24:05.460kind of play out. Longer term, what I'm wrestling with is exactly what you've put a finger on,
00:24:11.320which is that when we look at the share of single family homes in Ontario and BC owned by people
00:24:18.120who are over 75, if we extrapolate from the last census, which was 2021, we're probably looking at
00:24:24.780somewhere around 24% of all single family detached homes in Ontario and BC owned by people who are
00:24:32.24075 or older. And it's almost one in nine over 85. We're going to get the hard numbers when we get
00:24:39.480the census data next year, but that's what it looks like to me extrapolating from those trends.
00:24:44.540So all that to say, there will be an enormous transfer of particularly detached homes from
00:24:51.140the older cohort to the younger cohort. And an open question is that what price can those transact
00:24:57.500given that the younger cohort can't afford necessarily those prices. So this is why I
00:25:01.620said like I could see a scenario where this market just goes sideways and and and it might do that
00:25:08.060for five six seven eight years which is similar we saw in the 90s hopefully incomes continue to
00:25:12.680catch up and you kind of bridge the affordability gap that way to me that's more a story for the
00:25:16.7802030s as it plays out but it's a real thing for sure it's a real concern and then broadly I also
00:25:21.860think you you put you commented on something else it's a huge issue which is just over taxation and
00:25:27.240last lack of competitive in this year in Canada it's a structural issue we got to get this figured
00:25:30.820out because we are going to bleed out the entrepreneur class and it's just it's hard to
00:25:35.540be super optimistic in the near term until we figure something out on that front yeah yeah
00:25:40.980you know and well you know i'm not going to go into productivity because that's a whole other show but
00:25:47.460um condos let's talk about that because we're on the the housing so you know i don't even know where
00:25:53.860to start with condos so again you know did they are they going to level out are they going to
00:26:00.660level no no okay no so i was really clear again when yet when i was talking about where i think
00:26:05.700market's going i said single family and i said that for a reason i thought single family probably
00:26:09.140flattened there will be no bottom in the condo market for a few years in particular in ontario
00:26:14.020the issue that we face right now and is that back in kind of 21 22 um a lot of these these condos
00:26:22.660were pre-sold to investors. Um, and back then, and so, so these are the units that are completing
00:26:28.520today. So the brand new builds that are coming today were pre-sold back in kind of that 20,
00:26:32.78021, 22 period. And the idiocy at that time, and something that I was very actively flagging was
00:26:38.680these people were paying 30% above comparable resale at that time. So in other words,
00:26:46.420that the value of their condo had to increase 30% just to catch up to resale the next five years
00:26:51.600when it completed, or they'd have an issue with getting their financing. Well, rather than going
00:26:56.280up, it's gone down. And so now we're having these condo units complete and they're contractually
00:27:03.060obligated to deliver 1,400 a square foot, let's say. The unit's only worth nine, maybe 800 a
00:27:08.140square foot based on comparables in the area. It's a disaster. And we still have a couple more
00:27:13.320years of very high completions on deck. And so it's hard to be optimistic for the rental market
00:27:18.200specifically it will continue to grind lower i think until 2028 having said that everything is
00:27:24.240cyclical and the condo market is hyper cyclical and one thing i can tell you with certainty is
00:27:28.720come the 2030s there will be almost zero new completions for several years running of condos
00:27:35.040in the big cities and we'll actually have the opposite problem right we won't have enough
00:27:39.440condos i believe for it will be there'll be a shortage everything's cyclical and the thing
00:27:43.200with condos is by the time you realize you've overbuilt which is kind of where we hit in 2022
00:27:47.880too. You got a long, you know, five year run of, of, of high completions coming, but the opposite
00:27:54.440is true. By the time you realize you don't have enough supply, it's five years to bring new
00:27:57.480supply. So market is hyper cyclical. We're going through a nasty phase. It's going to be another
00:28:02.340couple of years where this grinds lower, but the 2030s, I think you can make the argument. It will
00:28:06.700be the opposite dynamic will be, will be undersupplied in some, some markets, you know,
00:28:11.520Ben and you know bring it up again when I was in Florida we saw condos go to $75,000 so I remember
00:28:19.240that were condos were like half a million went to 75 and we were we're like oh my goodness is
00:28:25.000there a floor to this and then all of a sudden there was we all ran out we bought them again
00:28:29.120and they went up for a short period of time now they're going back down again but you're right
00:28:32.760different setting issues today but you're you're absolutely right yeah but you know it does ride
00:28:37.240back and people do come in and they will buy them back it just the challenge is sustaining right and
00:28:42.520and uh as we go through these some of the crazy policies now that you're looking at you know
00:28:47.080there some of the the properties that i'm seeing now you know uh you you might have gone on and
00:28:52.760you love that condo but the guy beside you he actually bought as a rental unit so now he's
00:28:59.480transitioning people through your neighbor is changing every like you know six months to a
00:29:04.840year so you've got uh you know two neighbors a year coming through your building they're you
00:29:10.120know they're beating up your building they're knocking it you know there's a lot of issues
00:29:13.800now with the way people buy condos the longevity longevity the the maintenance of them quite
00:29:19.800frankly is a way different animal than it was 10 years ago where most of the people in your
00:29:25.960building you knew you knew their kids you know they you knew if they had a dog well that's all
00:29:31.080changed right because people are coming in and out of condos that rapid fire right now
00:29:35.400because they're all renting them out so whole it's a great point to watch yeah it's interesting to
00:29:40.200watch and i'm uh you know i i just uh i was supposed to be in dubai before uh this conflict
00:29:47.960war you know as you mentioned um was taking off and a friend of mine called me and he said you
00:29:53.800know that i was looking at a building uh at a property and he said uh don't bother coming down
00:29:59.640he said the property is basically flooded from top to bottom um and he said by the way before
00:30:07.240you come down here he said the buildings aren't built very well and i said what do you mean he
00:30:11.560says he says the construction was so fast and we were throwing things up so rapidly that a lot of
00:30:18.360the properties that are there just didn't hold up over time and i'm like oh wow that's crazy and
00:30:25.160we're starting to see some of that it's interesting we went up so fast with so many buildings in
00:30:30.600different parts of canada you know you're starting to hear these stories of you know like there's
00:30:35.000fires that go on for weeks behind walls and uh some of the crazy stuff that you're now hearing
00:30:40.520in in buildings that because we were we were throwing them up rapid fire right we were moving
00:30:45.400at such a fast pace so no you're right and one of the things that is kind of i guess kind of
00:30:52.280of incentivized some of that bad behavior is the fact that the way that we finance condos in Canada
00:30:57.680is a little different than in the U S like in the U S you can, you can get financing to build
00:31:01.720somewhat on spec. And in Canada, we don't do that. You have to pre-sell them. The problem
00:31:06.380with pre-selling them is that we, we allowed for years, people to assign their rights to close
00:31:11.780prior to completion. And so all these people who were buying these condo units, ostensibly for
00:31:17.780future delivery had no intention of actually taking delivery. They were just going to flip
00:31:21.320the contract for a huge profit. And when you create that sort of incentive structure, there's
00:31:25.980no sort of market check on construction quality. There's no accountability around kind of cutting
00:31:33.160corners on the parts of developers. So if you create that incentive structure, this is what
00:31:36.520you're going to get where people will cut those corners. And that's where we're at today. I share
00:31:40.480your concern. I think we've got a real problem there. Yeah. Remember you used to interview when
00:31:44.520before you bought a condo, you used to go in and interview the board. You'd meet with the board
00:31:48.340chair right now people just buy people just were buying them great they would go on the market and
00:31:53.220people wouldn't even sight unseen yep and they were buying these condos so let's talk let's talk a
00:31:59.780little bit you you hit on it earlier delinquencies so now we're starting to see you know and powers
00:32:05.700of the you know i call them power of sales but uh you're starting to see things drop and you know
00:32:11.620So again, and not to beleaguer, drone on about my US experience, but I learned very quickly
00:32:19.920in the US when I went through it, there's this half, half, half, half rule.
00:32:24.140And it's crazy when the banks come in and they take possession of properties and they
00:32:29.300sell them off, they tend to sell them off at a lower amount.
00:32:33.120And then that lower amount then creates the new market standard for the area.
00:32:37.900and then you know the problem is it goes on for a while then there's a bunch of delinquencies again
00:32:44.300the bank comes in and they have to sell them at half again and so what happens is you have this
00:32:48.780half half half rule you know and that's kind of the reason i saw all these condos and buildings go
00:32:54.860uh to these crazy prices in those days but are we're in a little bit of that spiral right now i
00:33:00.780i saw in your report which i really enjoyed i saw these homes they beautiful homes actually uh going
00:33:08.780out for like 46 of uh you know top market value what what's happening out there yeah so those are
00:33:17.100specifically power of sale which is kind of judicial short sales or foreclosures for your
00:33:22.780american listeners um in canada the the one saving grace we have is that in a in a power of sale or a
00:33:30.460of foreclosure. They're judicially obligated to try to get the best price. They can't just fire
00:33:35.660sale it. Now, having said that, what that means in practice, though, is they might list a home for
00:33:40.440sale at what they think is the market value. If they don't get a bid, they'll cut it a couple
00:33:44.300weeks later and cut it and cut it and cut it. And so what we find is these power of sale, they
00:33:48.180actually will find the market price, right? And so they'll just keep cutting into, and that's
00:33:54.720what we're seeing. And so they are leading the prices to the downside. Where it's a concern,
00:33:59.300it's it's much more of an alarming trend in Ontario right now I don't want to overstate it
00:34:05.980because like today we're basically only back to kind of long-term averages for for mortgage
00:34:11.360delinquencies that they were so low for so long that we've come alarmingly off that base but if
00:34:16.580you took a snapshot today we're only at about the long-term average but what's concerning is how
00:34:19.900quickly they're rising so the work that I did we looked at the number of delinquent mortgages in
00:34:25.120Canada, I'm sorry, in Ontario specifically, and it's rising on a monthly basis at the fastest
00:34:30.380rate since the financial crisis. And we're seeing that month after month, it's increasing, it's
00:34:34.240increasing, it's increasing. So there's some serious stress there in Ontario specifically,
00:34:39.620the rest of the country, BC is seeing, again, similar trend. The rest of the country looks
00:34:45.180okay right now, but man, Ontario looks like a real problem. And there's definitely an issue
00:34:49.380with mortgage delinquencies in Ontario. Part of that's related to the backup and interest rates.
00:34:54.840this is a heavy year for mortgage renewals it's the heaviest year on record for renewals so there
00:34:58.760are people renewing higher some of that's related to falling rents right now that the international
00:35:04.200students have gone a lot of these towns that had like the places where we're seeing the steepest
00:35:08.920drop in prices are the places that saw a lot of foreign students come in right so the waterloo is
00:35:15.080the brampton so those places are getting hit really hard right now so there's that dynamic as
00:35:19.080well and then also if we look at the economic data private sector jobs are contracting in ontario
00:35:24.040right now on a year of year basis. We never see that outside of recession. So central Canada is
00:35:28.080really hurting right now. It's being offset by strength on the prairies. But if you kind of
00:35:34.140disaggregate that, disaggregate that data, Ontario looks like it's sort of skirting along the edge
00:35:39.560of a recession. And so all those things are coming together and you're seeing this dramatic
00:35:43.680rise in mortgage delinquencies, big uptick in power of sale. Even if I'm right and the market
00:35:49.100kind of stabilizes, there's a long runway of rising power of sale from here. We're going to
00:35:53.680another year of this i think where it continues to rise even in a stabilizing market and that
00:35:58.400confuses a lot of people but you having been a student of the us experience you'll know that
00:36:02.960the market found a floor in prices even as mortgage links continue to trend up that's
00:36:07.520very common in these cycles the market will bottom but you got a long tail of these distressed
00:36:11.920borrowers and it takes years to play out it does you know it's funny i remember the days
00:36:16.240where my dad and i used to go in and we'd go to the local banker and they'd have a picture of all
00:36:21.120the power sales on the window we used to go into and you know used to go meet him and talk about
00:36:26.480which one you know it was good to buy and how much and negotiate now it's it's a little different
00:36:32.320world but i i do remember those days that's how old i am so but uh you know i wanted to talk about
00:36:38.400brampton because you know and there was a really good article in the globe and mail and i know you
00:36:43.200you know you do a lot of writing and and work for different newspapers um and you know they they took
00:36:49.440a look at uh brampton and they said you know because of the stress on the market because of
00:36:57.280all the immigration policies the multi-generational homes being almost uh seven times higher than the
00:37:04.240rest of canada um and uh you know the students and everything else they're now seeing one of
00:37:11.680the highest delinquencies up in brampton in canada and yeah the highest i believe the highest and you
00:37:18.640know it also you know you and i hit on it before the show and you know i tell the story on a on
00:37:25.280another show and i won't get into the whole story but it's at a at a dinner party and everyone at
00:37:30.960the dinner party that i went to is from another country and they all own five or more homes and
00:37:37.520so there's 30 people at this dinner party and i left and i said to my wife in the car and i said
00:37:42.320we the only one who doesn't own five homes right like that homes being condos whatever right and
00:37:48.000i said but i said but you know half those people you know they just got here a year or two ago and
00:37:52.640quite frankly i don't even know if they're working i said how are they you know how are they doing
00:37:56.640this right and so there were these you know and i didn't want to get into anyone's business but
00:38:01.600you know i said she said well she says you know they know this mortgage broker and his name's this
00:38:06.240and so the next party we go to the guy i'm sitting there and this gentleman comes up wonderful
00:38:11.200gentleman really really uh funny creative guy he sits down he says paul with your business he says
00:38:17.200i can get you at least a dozen homes and i said i don't want a dozen homes i don't want to like i
00:38:22.240don't i really not interested right and i said why would you even do that and he says because you can
00:38:27.520and it works you get great rents you put students in them you do all this i said man i said that's
00:38:32.080stressful how do you do that and you know and he said well this is our model and i said no that's
00:38:37.520not really a sustainable model so is it is part of it all the things i laid out or was it never a
00:38:43.280sustainable model well look there there's there's a lot going on with the branford story so so let's
00:38:50.160let's address a couple things off the top the globe discussed the declining enrollments in
00:38:57.120temporary international students absolutely a factor you used to be able to make the numbers
00:39:01.120work by putting 10 kids from india in a basement you can't anymore because they're no longer here
00:39:06.000without a doubt that was a thing um higher interest rates a thing soft economy is a thing
00:39:10.640and the reality is when you have a community that skews more towards newer Canadians you also tend
00:39:16.360to have a higher share of self-employment and a lot of those industries tend to be much more
00:39:20.600cyclical they're construction and trade related so when you get a bit of a softening in the economy
00:39:24.900it's not entirely unexpected that you would see those areas get hit a little harder all of that's
00:39:29.100legitimate all that was discussed by the globe what was not discussed because it's not politically
00:39:33.040popular is the fact that Brampton is the fraud capital of Canada right we knew this I mean I'll
00:39:38.220you an anecdote i met with the the ceo of a of a private mortgage insurer this is a decade ago
00:39:43.980and and even back then i was concerned with mortgage document fraud and i said how are
00:39:47.820you guys thinking about this and the i kid you not the first thing he said because look we know
00:39:51.340all about brampton okay this is what he said to me so it's been an open secret in the mortgage
00:39:56.620industry for a long time there is an issue with mortgage document fraud i would encourage all of
00:40:00.700your listeners and viewers to look up cbc just type in cbc undercover mortgage document fraud
00:40:07.260it was from 2024, I believe. Fascinating undercover research by CBC on the pervasiveness
00:40:14.860of fraud in certain areas. And Brampton was kind of the epicenter. So look, I've been talking about
00:40:20.280this forever on Twitter. I get a lot of flack for it. It's an open secret in the mortgage industry
00:40:24.160that there was rampant document fraud. That's coming home to roost as well, but it's not
00:40:27.240politically popular to talk about. Now, interestingly, here's something to contemplate.
00:40:31.960um back in the 2025 budget the government said that they will bring in
00:40:37.720sort of um automatic income verification direct income verification through cra so if you're a
00:40:45.520lender somebody comes into you and says here's what i make here's my job letter i make 100k
00:40:49.760whatever it is they can immediately verify that with cra okay that was promised in the 2025 budget
00:40:55.480the mortgage industry in their pre-budget submission the lobby group pushed hard for
00:41:00.740this because they themselves recognize that this is a serious problem in the industry and they need
00:41:04.840help weeding it out. This has been a thing in the US for 20 years. You could automatically verify
00:41:09.560your tax documentation through, in their case, the IRS. It was promised in the 2045 budget. We
00:41:16.260have not seen that yet. And to me, I sort of wrestle with, is the government so incompetent
00:41:25.220that they don't recognize how big a problem this is and how easy it is to fix? Or do they recognize
00:41:30.720that it's such a big problem that it's going to be hard to unwind it without creating collateral
00:41:35.120damage in places where this was pervasive and i don't know which one of those makes me you know
00:41:40.320more uncomfortable but neither of them is a good story but it is absolutely a thing that we had a
00:41:45.920serious issue with document fraud in some of those areas and if you doubt that look up that cbc
00:41:49.280documentary it'll blow your mind i will i will hey ben and i want to i gotta ask you this question
00:41:56.480and your opinion on all this affordable homes i know you know the the budget update came out the
00:42:03.600other day last week on thursday we got the the document we're doing a show later today on it
00:42:10.000and it has all this affordable home uh subsidization you know billions and billions
00:42:18.080of dollars going into building new homes you mentioned it earlier is there any concern about
00:42:23.520oversaturation of affordable homes like that you know and i look at it and i think to myself
00:42:29.040it's kind of weird because you know having a financial background i kind of look at this and
00:42:34.480i think to myself okay we have homes that aren't selling we have condos that aren't selling we have
00:42:41.280rental rates dropping and now we're going to take government money and we're going to build and
00:42:45.840subsidize more affordable homes and then i you know something's counterintuitive to it i can't
00:42:52.160get it in my head that it makes sense um i'm struggling with it am i wrong am i right am i
00:42:59.440just you know should forget about it what any thoughts on how are you looking at it right now
00:43:06.000yeah i spend less time in the affordable end of the market because it's it's it's something that
00:43:10.640does it's such a small like the actual government sponsored affordable market is such a relatively
00:43:15.680small part of the market doesn't really move that the broader themes um i think from a high level
00:43:20.800i would personally rather see more effort placed at just getting out of the way levying less taxes
00:43:28.160on new development for example i mean for you know roughly a third of the cost of a new home
00:43:33.120is various levels of taxation we tax housing the same way that we do cigarettes and alcohol it's
00:43:38.480it's taxed like a sin and so we kind of screw the next generation on on this i for from from my
00:43:43.600perspective i get less interested i i know there's a need for that there's very legitimate especially
00:43:49.040today with the cost of living there's a legitimate need for affordable housing i don't have a view on
00:43:53.360what that should look like but i have much more conviction that the government could move the
00:43:57.280needle a lot further if they tried to get out of the way help help municipalities get out of the
00:44:02.880way on zoning issues remove taxation and and try to bring more supply and in general when you bring
00:44:08.960more supply you tend to get lower prices and that benefits everybody except well except existing
00:44:13.280homeowners let's say yeah no i'm with you and you know we haven't even gotten into it but there's a
00:44:18.640whole other show on uh the supplies to build and quite frankly helping helping them actually bring
00:44:24.800some of our pricing back to pre-covid rates but which never happened again but and as a builder
00:44:30.240that drives me absolutely batty all the time um ben do me before we go tell us a little bit more
00:44:37.760about your company how do you get the report um because you know i think for those listeners and
00:44:44.320for our viewers you know her getting to know true patriot love if you're interested in real estate
00:44:50.320you know and you're interested in the analytics of real estate you know the your report is amazing
00:44:56.640so tell me about how you get it where you get it um because i want to make sure the viewers know
00:45:01.280before we go thank you very much for that so you can check it out edge analytics.ca there is a
00:45:07.440sign up link there and in fact i'll give you a discount code for your listeners viewers edge 30
00:45:12.640I'll just say it here. We'll drop the monthly price to $30 a month, which I think is a steal.
00:45:18.240I will warn your viewers, though, you can't sign up with a generic email. You can't have no hotmail,
00:45:22.660no Gmail has to be verifiable professional email. And the reason for that is I have a comparable
00:45:26.580professionally institutionally priced product. And so I can't have I can't have my research
00:45:32.240floating around, you know, without me knowing who's getting it. So so so that's the only caveat.
00:45:37.140But but otherwise, thank you very much for the kind words. Appreciate it.
00:45:39.500yeah thank you ben and thank you for taking the time hey i want to have you back in a few months
00:45:45.160when receivers things sort of balance out and i think in my mind i think after the summer we're
00:45:50.980going to see kind of another phase of what's going to happen in housing in canada um and of course
00:45:57.540always you know when the fall comes you get a feel for what was built over the summer so
00:46:01.580i really appreciate it and it was it was great to do this with you today and i look forward to
00:46:06.940seeing you soon. My pleasure. Thanks for having me.