The Canadian Investor - Why the GTA Condo Market is Tanking with Dan Foch

Episode Date: July 7, 2025

In this episode, we give you a timely update on the Canadian housing market with a focus on some striking regional divergences. Dan breaks down the latest trends emerging from the spring data, highlighting continued resilience in Alberta and the Prairies, driven by strong population growth and economic tailwinds. Meanwhile, the GTA is showing signs of serious stress, especially in the condo market. We dive into the growing oversupply of condos, falling rents, and the pain facing investors holding pre-construction units bought at peak prices. We also explore potential opportunities for buyers, what a recovery might depend on, and whether policy changes could shake up the market again. Get your TSX Meetup tickets here! Get your Calgary Meetup Tickets here! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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that it's a business. Just my reminder to people who own safe Google's, don't be surprised when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Hey everyone, the special episode you're about to listen to quite some time. Do talk about the Calgary event coming up on July 8th So if you are listening to that on the 7th

Just be aware that the event is actually free now So you can go into the show notes and click on the event bright event link and you'll be able to register your ticket There is no cost So if you live around Calgary or in Alberta not too far of a drive from the event itself It would be great to see you there so you can go to the show note and click on that. So that's the last housekeeping item that I had before the episode gets started. I hope you enjoyed the episode. It's always fun to have Dan on the podcast, and here it is.

Welcome back to the Canadian Investor Podcast. I'm back here with another Dan, not the Dan Ken that you're used to, but Dan Faux. So Dan, welcome back to the podcast. You're also the co-host of the Canadian Real Estate Investor Podcast. Welcome back. We're going to talk about obviously the Canadian housing market. For those who don't know you, you're an expert when it comes to that. So if you wanna give them a little bit of an intro and then we'll get started. We'll actually also talk about our upcoming meetup in Calgary before we move on to the topics.

Yeah, thanks for having me. My name's Daniel Foesch. I'm a real estate broker by trade, but do a lot of analysis and consulting work, market research for some of the biggest developers in Canada. I've done work with governments and I'm also Chief Real Estate Officer at an AI-based real estate brokerage called Valerie.ca. We help people use AI to buy and sell houses. Yeah, I mean, we are onboarding realtors. Now, we've got about 35, 40. We'll probably hit 100 by the

end of the year. That's what I'm up to. What this has led me to is just doing a lot of analysis on Canadian real estate. I do a monthly market call with one of Canada's biggest real estate publications. I contribute to a couple of columns for a couple of big real estate publications in Canada. I always have to know what's going on. That's why you and I like talking through this stuff on the show. Oh, yeah, definitely. We'll be talking about real estate, a little bit of macro too. I think it'll be fun. We'll be touching on what's happening in the condo market, especially in the GTA. But before we get started, we have the Calgary event, the Stampede event coming in a few weeks. So when you're hearing this, it'll probably be in about a week or so that the event will take place on July 8th Dan it's an event that you hosted last year

we're doing again, so you want to give people a little bit of a Breakdown how the event's gonna be and how they can go ahead and register for the event I have in the past, but it'll be nice and a little bit different coming from you. Yeah, for sure. Yeah. So, you can register on Eventbrite. It's really just like a meetup for people that meet other investors, meet other real estate investors.

We have a couple of sponsors out there and it'll be just like a fun hangout. We had a rooftop patio just outside of the city. I find like a lot of local people because it's really like this is for... It's an opportunity for us to meet our Calgary audience, which is a big audience for us on a real estate show. But also a lot of people from the prairies and all over Western Canada, especially fly in for the stampede. And so, I find a lot of people who are actually in Calgary don't, there's like kind of two types of people. People who really do the stampede and then people who kind of get out of the city for it because it's just like a crazy thing going on. And so we haven't put ours downtown. It who kind of like get out of the city for it because it's just like a crazy thing going on. And so we haven't put ours downtown.

It's sort of on the outside of town, but it's an awesome event. Nice big rooftop patio. We had like 200 plus people last year. It's a blast and it's just a really good time to meet us, talk to me, Simone, Braden, Nick, and meet other investors like mindedminded people in your market. Because I find like, you know, Calgary is a big city and it's growing massively as the fastest population growth in the world for a city actually. And so it's always nice to go and meet new local people or people that you haven't met.

Yeah, it should be fun. And the link is in the show note. And if you want to register, just use code TCI, you'll get a discount that will be applied at checkout. So we're definitely looking forward for people to be there it'll be a fun time. I've been to Calgary a few times but the first time that I'll be doing an event in Calgary so it should be fun. But now let's get started for the meat of the episode. Now Dan can you give us like a quick update on the overall Canadian market without going into too much detail for each region, but just give us a general sense, obviously knowing that there's a lot of regionality to the real estate market in Canada.

It's very different depending if you're looking at the GTA, for example, versus Regina. Yeah. Well, and I think that that's really the story is you can easily divide Canada's market into two, which is places where people can afford houses and places where people can't afford houses. And the places where people can afford houses are doing fine. House prices are up actually on a year over year basis in most markets. Well, actually all provinces except for Ontario and BC.

So you hear the headline stat that house prices are down in Canada and it sounds like they're down everywhere. You would assume that based on that data point, but it's actually just Ontario and BC. But because prices are so high and because there's so much trade volume in those two markets, it actually skews the national average down massively. So you've got BC and Ontario down about 4% year over year and the national average down massively. So you've got BC and Ontario down about 4% year over year and the national average down about 2%. But then you've got Alberta up about 4%, Saskatchewan, Manitoba up over 8%, Quebec, New Brunswick, Nova Scotia,

PEI and Newfoundland all up over 5%. And so it's really a tale of two markets, right? Affordability, we've been hearing about housing affordability for the last little while and really Ontario and BC are suffering because people can't take on more debt to afford the house prices at current interest rates. And so the only thing that's going to increase the number of houses that sells in those markets is if prices keep falling and they are. And so that's where we're at. The other piece is that rents are falling and so there's a couple of different macro factors and I know you and I like to riff on macro a little bit here. You've got the

setup is interest rates, I think it's a question mark until the Fed cuts and it seems like the Fed cuts not even being priced in July anymore. You've got record new supply being added to the market. Then we're going to talk about that. But Toronto's condo market has 40,000 units closing this year, but you've also got record rental construction, right? So you're seeing a ton of purpose-built rental in markets outside of Toronto. And then you've also got immigration falling off. So we're actually seeing potentially a decline in the Canadian population and we're seeing decreases in many different provinces. potentially a decline in the Canadian population and we're seeing decreases in many different provinces. And then the last piece on that is unemployment, right?

We're losing jobs, right? Our job growth and wage growth is slowing. And so until we, until all of those factors materialize, I think the real estate market is really a roll of the dice, right? Yeah, exactly. And I think when you're talking to about a bit more macro, I know that's been a case in the US where you have some areas that are slowing down in terms of price growth or actually seeing declines, but it's still not super affordable

because you have things like homeowners insurance, but and also property taxes that are keep going up and also the maintenance costs keep going up for the properties. So how does that... I know we didn't really prepare that, but knowing you, you probably have a decent sense of how that's impacting people. But how is that impacting people in the home affordability sphere, if you like, lack of better words? Yeah. It's a really good question because I think Canada has this mortgage stress test, the B20 stress test where we've basically... Everybody who has a mortgage right now has pretty much qualified at a rate that's either 2% higher than theirs or a minimum of 5%.

And so everyone currently who has a mortgage qualified at a rate that is higher than the market rate. They qualified at 5% and the market rate is 4%. So the stress test hopefully did its job. It appeared to do something. There was a period of time when it was actually kind of counterintuitive because it was pushing more people into the variable rate because the fixed rate was qualifying at a higher rate. So that was a little bit of a messy period for a minute there. And we are seeing more people actually get into variable rates, which would communicate that consumers do think rates are going to fall. But the thing about the stress test is it didn't account for the fact that, you

know, during that five-year mortgage term that you were being stress tested on, your auto payments went up, your insurance payments, like you mentioned, went up, right? Your taxes went up, your wages probably didn't go up all that much. And so even though your mortgage rate was fixed and stress tested, not everything else in your household expenditures was stress tested. And that's really where I think we're starting to see a lot of the stress forming is households are just overextended. Canadians have to deleverage. We have record household debt to GDP, and we can't take on more debt to get ourselves out of the situation,

which is the way that we used to. But most of us just can't qualify to get more debt. Well, yeah, and you're already seeing some delinquency rates going up when you start looking at auto loans and also credit card delinquency rates. So whether pretty much I think every big bank that has like a credit card business, obviously it will vary because typical customers at RBC will probably be very different than customers at the Laurentian bank or customers that are using the Canadian Tire credit card. I know

that for a fact because they have much higher delinquency rates. Usually when you start seeing that, it could cause some problems for delinquency rates down the line for mortgages because people tend to stop paying their car loans, their credit cards before they stop paying their mortgage. Absolutely. I think you consider it even on just like your own. If you have a bunch of debt to pay, the last thing you're going to choose not to pay is your mortgage. The reason for that is it's your house. That's the last thing you want to lose. That's why

lenders price that debt the best because they know that you're the most likely to pay it. Yeah, exactly. Now, if we... It's a great overview generally in Canada before we move on to the GTA because I think that's where it gets really meaty and also I think there's a lot of stress based on what I've read and what we've talked about especially in the condo market. Also some potential opportunities for people who are looking to enter those markets but in terms of population before we get to that is it across board, obviously population growth has really slowed in Canada? Or are you seeing kind of more provinces that may be seeing some decline in population, which obviously will impact demand for real estate versus others that are still seeing growth? I'm thinking Alberta may still be seeing growth, but you would know better than I do.

Yeah. So I put out a chart on this on on Twitter recently actually. I'll see if I can just share my screen here. But basically, Alberta is seeing an absolutely massive amount of population growth. It's got to be like 10X most markets. I don't know. I mean, basically, over 20,000 in Alberta added. And then the next one is Manitoba, which is like 2,500. Okay. Saskatchewan, same thing, 2,500. New Brunswick, Nova Scotia, PEI, all added like, I don't know, maybe 1,000.

Right? And this is net after you consider, after you account for provincial inflows and outflows and international inflows and outflows. And then you look at Quebec. Quebec and BC lost a small amount, but Ontario lost over 5,000 people. Most people look at what's the bull case for real estate and they're like- More people. Yeah, exactly.

It's more, we call it quantitative peopling, right? That's how the government pumps up housing. It's like, we call it quantitative peopling, right? It's like that's how the government pumps up housing. It's like that's more demand. Those are the people who are renting the units, buying the units, et cetera. Well, if that's falling in certain markets, that's the opposite of the bull case that I think that the bull case is actually not just population growth, but I think it's a part of it, right? We don't measure house prices in people. You measure house prices in dollars. And so actually liquidity and the amount of money that said people have access to is a bigger reflection of house prices.

But all of that being said, it's still a factor. Yeah, I remember I would hop on those faces you were hosting back in 2022, early 22 when rates were about to go up and the amount of realtors that were still like ragingly bullish because they're like, well, population grow, like there's no way prices just don't keep going up. It's something, it's an argument. I remember it was not being as much in this space as you are. It surprised me how much they were putting into that one specific thing like for a bold

case for real estate. Yeah. I mean, you can always count on the real estate profession to want to see prices to go up, which it's always baffled me because you look at the result of house prices going up ad nauseam and it looks like, I mean, that's how you end up with a housing market like Europe, right? Where very few people can afford houses. If people can't afford houses, they don't transact them. And so now, the real estate industry is really suffering because house prices did go up like

they wanted and they have no transactions because nobody can afford houses. And so, what you should actually be hoping for is house prices to not go up and to be a stable market so that people can afford to buy and sell them. But here, I think that a lot of professionals really rely on house price growth because they don't have a value proposition. And so they're like, you know, rather than saying or like really explaining to somebody or doing their job of being like a good representative, they just are like, oh, you just buy this

because it'll go up in value, and you'll make a lot of money. That's really why it evolved into this whole bull case thing. First, it was that, and then immigration has fallen off, and now it's like, oh, rate cuts. Surely the next 25-bit rate cut will send house prices on a rocket ship. But we've seen what? Five of those now that we've seen what, five of those now that haven't have actually,

we've seen prices falling during the rate cutting cycle. And historically, you can go back and look at any market cycle and prices typically do fall during the cutting cycle. But I guess everybody thought this time would be different, right? Yeah, exactly. This time's always different. Want to buy a stock,

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Let's pivot here to where there's definitely some more stress. It's starting to make headlines. I'll give you some props here because we were texting probably a couple of years ago, I would think at this point, at least a year and a half ago and you were sending me charts about like what the condo market and the GTA was starting to look like and some potential trouble brewing and now a lot of mainstream media outlets are starting to pick up on that. So can you start by the basics here for people who are not very familiar with it?

Is it specific to the GTA or are you seeing that more spread across Ontario? Are you seeing that in Vancouver as well or it's more GTA? And is it just a condo market or is it just actually more specifically one bedroom or a condo market as a whole? Detach? Is it a suburbs? Is it Toronto itself? I know it's a lot of questions, but I know in you, you'll be able to riff off of that. Yeah. It gives me a lot to talk about. So to answer the first question of geography, it's not just the GTA, but it is obviously most prevalent in the GTA and it's definitely worse than the worst in the GTA. I don't know if you want to share that chart that I have

there that shows kind of the equity position, but basically something like 70% of projects are fully underwater, right? So what happened with the GTA, and I think the way you and I haven't talked about this a lot on the show, so I can kind of dive into this a little bit. But basically, what happened was builders wanted to start capturing the spread. And so they started like, so in 2015 to 2019, pre-con investors were taking the risk on projects and being rewarded heavily. Builder would launch a project and they'd sell it for maybe $900 a square foot, but because the market was moving up and it takes four years to build these things, by closing, the unit would be worth whatever, 1,000 or 1,100 a foot.

The assumption was that it would be worth it. Well, that's what was actually happening. Oh, in the past. Yeah. For 2015, he bought a pre-con for $600, $700 a foot, which was... Back then, it was the same. There's price the same as the resale market, right? And so, it was not a bad speculative trade. People were making a lot of money doing this. Builders didn't really care because those deposits were part of their capital stack,

so builders could borrow against the deposits. That's an oversimplification, but they could use them as collateral to get a construction loan once they were insured. Typically, how much of the building would they pre-sell? Most construction lenders want to see 70% to 75 percent of a building pre-sold. Some groups sold 100 percent, but some of the more bullish groups who thought, oh, you know, I want to be the one who owns 30 percent of the inventory would sell, would only sell 70 percent. But some groups, you know, some of the some of the some groups who had the foresight or just understood the

mechanics of it a bit bit differently were selling 100 percent. And the idea to keep back some inventory for yourself is that you're bullish on later just understood the mechanics of it a bit differently. We're selling 100%. And the idea to keep back some inventory for yourself is that you're bullish on the condo market and when it's completed, you think you'll actually be able to sell them at a higher price per square foot. Is that it? Exactly. Okay.

Yeah. And so- Just good old greed. That's good. Yeah, exactly. But the mechanics of it were interesting because these investors, they're still necessary because they would give money to the builders and put faith in the project. If 70 builder could sell 70% of the units, then they could proceed with the project.

But what happened was the builders, and you talk about greed, builders wanted to start capturing more and more of that spread. The format in which they did that was they would price the units based on what the future value trajectory would be. And so it started creeping up. First they would start, they started pricing them at maybe 10% above fair market value or 5%. And then so the buyer would still have some upside and they would have, builders would

have a bit of the upside, capture a bit of the upside. And then they went to 10 and 20 and 30. 30% was probably the peak and there was only a handful of projects that were in that category. But what this resulted in was that buyers basically paying more than what the condos were worth. And construction costs escalated with that. So like it wasn't... Maybe it wasn't just what builders want So like it wasn't maybe it wasn't

just what builders want. Maybe it wasn't pure greed. But you know, you kind of saw these the trades. So like you're forming companies, all everybody in the in the supply pipeline, the supply chain of housing kind of increase their prices as well. And so, you know, to the point where basically a builder couldn't afford to build for less than $1,400 a square foot. And now that's where we're at today, right? Like a builder couldn't afford to build for less than $1,400 a square foot. And now that's where we're at today, right? Like a builder wouldn't launch a project for less than like $1,300, $1,400 a foot. Maybe like you're seeing some at like $1,000, $1,200 a foot because they have cheaper land

or development charges have now been deferred to the end or whatever. But anyway, the cost structure made it such that they couldn't do it. And so buyers- And what's the current value of this for footage right now? I mean, like your resale market right now is probably for like a brand new condo, like a less than one year old condo in the resale market is probably in the nines, like 9.50 a foot, right?

So am I good to conclude that there is basically no new projects launching right now? Yeah, like they're trying, but like, yeah, they're not getting any sales. Yeah. Okay. So, yeah. That's why I was asking and getting to it. I'm like, okay, just then, why would a builder take the risk at that point? Like they can probably... Well, because they have to, right? Imagine being like a manufacturing company and you

buy all the supplies for your business to build your widgets or whatever and then the demand falls off. Well, you just spent all this money on all of this and for them that's land, right? Their input is land. So they bought a bunch of land and they owe a bunch of money on that land and it's costing them. And so they have to try, right? And you're seeing like where they can, developers are pivoting to purpose-built rental. So CMHC has a really good program

called MLI Select. We do a lot of MLI Select deals less now because their risk profile of them has increased a lot. But historically, we've done a lot of them. And you know, you can get a 50-year amortization, which is crazy, but 1.1 debt service coverage ratio. So the project only needs to be 10% cashflow positive. Basically, you can cashflow like a four and a half percent cap rate project. And so a lot of developers who can deliver their projects at a four and a half percent yield on cost are pivoting to the purposeful rental, but not all projects actually. And in the GTA, not a lot of projects work in that format.

Outside of the GTA, and I mentioned at the beginning of the episode, we're seeing this huge surge in purpose-built rental, right? A lot of REITs are building. We're going to talk about that in the follow-up episode to this on our show. But like a lot of REITs are building residential pipelines. I've mentioned the last couple of times we spoke that I'm bullish on any REIT that has a development pipeline. But in the GTA, especially in the 416, it doesn't really, the numbers don't work, right?

Land costs are too high, construction costs are too high, rents aren't high enough. And so it's not really a good setup to bring purposeful rental to the market. Okay. So, and now to just so people understand. So anyone who bought a pre-construction between 2020 and 2022, they're likely underwater now, right? Yeah, for sure. They've likely lost their entire deposit. It depends on the project, but on average, they've lost their entire deposit.

So what we're seeing is this phenomenon that that we kind of describe as lose money fast or slow, where basically people are trying to decide whether or not they want to take possession of the unit and then sell it or fail to take possession of the unit and get sued for the difference, which the builder would be entitled to do. They'd take their entire deposit and then they can sue them for any damages or loss of value or take possession of the unit and rent it out at negative $1,000 a month cash flow. That's the decision-making process that is happening in the market right now.

Is it across the board? Is it more one-bedroom, studios, two-bedroom? The smaller the unit gets, the more amplified the phenomenon is, I would say. What happened was because builders were targeting speculators, speculators just wanted to get exposure for the cheapest entry point that they could. And so the cheaper and cheaper units were the ones that got more demand. You could go look at a price sheet from a builder and all of the studios would sell out first and then the one bedrooms would sell out first. And they're often left with

two and three bedroom supply. And so those have been a little bit more resilient and the price per square foot is higher the lower the square footage as well. I guess something you had mentioned when we were talking about this episode is that I hadn't realized, I think you had mentioned it to me before too, how many people were using HELOC, so home equity lines of credit to be able to I guess buy these Preconstructions with the hopes of flipping them at a profit, but now they're looking at Underwater whether it's 10 15 20 percent. I guess I'll depend on the project and the type of condo plus They're also paying I don't know 7% maybe around 6 7 percent on the e-lock

Yeah, well, I think he-Locks have come down. A lot of them are back in the fives, but still. It's still a huge capital cost on top of the mortgage that you have to pay. So you're basically paying. If you use a E-Lock, you're basically in 100% debt position, right? So you're now buying this condo fully on margin,

servicing the debt on a yield that doesn't service. So this would be equivalent to buying a dividend stock on margin, but the, you know, the dividend yield that's paying you isn't substantial enough to actually service the debt that you use to buy the stock, right? Yeah. Yeah. Not the best position to be in. And so there's like CIBC, Ben Tao put out this report with Urbanation that showed,

you know, like 81% of condos closing in 2024 were cashflow negative. And the majority of them were like $600 plus cashflow negative. Average cashflow negative position for newly completed condo was $600 in 2023. And that's all encompassing? That's all expenses or just looking at the mortgage and potential rent? No, that's all expenses. So mortgage rent, condo fees, taxes, maintenance insurance. Yeah.

Still not great when you're looking at that and you're seeing. And actually, if I'm going again, just sticking the condo market, like, are you what are you seeing in terms of supply inventory? Like is the inventory really increasing? Are sellers just not flexible in general? Like how's that playing out right now? Yeah, so we have basically the highest inventory we've ever seen in the condo market

and it's continues to climb. I'll see if I can pull the chart up, but basically, there's deals happening. And I think you're seeing more and more of your first time buyers who are seeing this drop as an opportunity to enter the market, kind of get on the housing ladder. They're like, I'll never afford a detached in Toronto,

but at least if I can buy a condo, it's forcing me to save money, right? Like, you know, it's, they're at the point where they're not that much of a spread above renting. Like, you know, two years ago, you could rent a condo for like 30% less per month than it would cost to own the same condo. Now, because rates have come down and prices have come down, that spreads like you can get it to zero for the right unit. But on average, it's probably 5% to 10%. And that doesn't account for the opportunity cost of you putting the down payment. If you're renting, you could put the down payment into stocks and get a yield or whatever. But the inventory, it's just not clearing at the rate that it needs to for prices to stop falling. Sellers, if they really want to sell, they have to drop their price because buyers have thousands

and thousands, like tens of thousands of these units to pick from. And it's a very homogenous product, right? It's not like old houses that have all been renovated differently or whatever, and you could argue that my contractor was better than the one up the street, so you have to pay the extra premium or whatever. They're all- Well, plus single family homes, old houses, and older neighborhoods,

it's not like they're building any new ones in these areas, right? If they're building something new, they're tearing down no one building something new, or they're building duplex or fourplex or whatever the zoning allows for that area. Yeah. Yeah. And so, these are all just a bunch of concrete boxes with the same finishes or comparable

finishes. So, they're very easily comparable. So, if you, Mr. Seller, don't sell your unit to me, well, I'll just go offer the other guy in the building with the identical unit the same amount, right? Or less, like, you know, and I'll just keep playing you off of one another until somebody gives me what they want. Or if they don't, I'll go to the other unit in the building or another building up the street that is basically the same. And so, buyers are really in a strong negotiating position at this point. Yeah. And I mean, it probably creates

some opportunities, whether you're just a home buyer or you're an investor. Like, what would be the best strategy at that point? You're just ruthless and you just lowball until someone accepts the offer? I think so. Yeah, I mean, realistically, you hate to say it because it kind of sucks. But like, you know, it's realistically,

like, there's no other way to think about it. The first thing you should do is you should establish your market thesis, right? And not to say that people should try and time the market, but if you think, if you're afraid to get into the market today, then because you think, oh, there's going to be 10% downside in the market, it's not like stocks where you have to buy at the market price or close to it. There's a bid ask spread that you can actually go and individually negotiate. Put a limit order. Exactly. You're functionally putting in a limit order and you're basically by low balling a bunch of these properties. So you're saying, hey, I'll buy your property

for 10% below what it's worth because that's what I think it's going to be worth in 10 years, assuming that your list price is like market value. A lot of people want to try and time the bottom of the real estate market, but you actually create the bottom. The bottom is like, it's those down candles. If you're looking at a stock chart, it's the sum of all of those people who set a lower bid and then the seller who met their expectations. And eventually, as sellers continue to meet the buyer's prices, the price moves

down and when you're actually at the bottom, that bottom comp is whoever hit that biggest kind of gap down, let's call it, right? Whoever was able to set the seller's expectations the lowest or get the seller's expectations to meet them at the lowest price. And then eventually nobody can beat that price and prices start to go up and actually the buyers start to meet the seller's expectations. That's how the prices go back up. So by the time you get to the bottom, you're meeting the seller's expectations and the bottom is invisible because you have to set the bottom, right? Once you can see the bottom, you're already on the

way back up. So if you want to buy the bottom, which most people do, nobody wants to pay more than they have to for an asset, You have to be out low balling properties, like offering on a property what you think its future value is. And if you think its future value is down 10%, then offer 10% and don't pay more than 10%, any more than 10% below the price in less or for any reason, right?

Because the one thing about real estate that I will say that makes it a little bit different than other assets, it's maybe comparable to a dividend stock, but even then it's still a little bit different, is you're buying it with debt. And so the longer you own it, the more efficiently it pays itself off, right? Each month that you pay your mortgage, you're paying more principal and less interest. And so there's a benefit to actually owning real estate longer, less the sunk costs, right? So you have to pay your taxes longer, your maintenance insurance longer,

you know, you start to see depreciation take place. But in the grand scheme of things, for the big reason why most people buy real estate, which is to save money through a mortgage, there's a benefit to owning it sooner. And so if you want to own it sooner and you don't want to risk the downside, then price in the downside, right?

Offer less than what you feel the market value is today. Yeah. And you don't have to feel bad for lowballing either. At the end of the day, look, people that are selling, the investor, whether it's individual, look, they clearly made a mistake. And at the end of the day, you're offering them a way out certainty. It may not be what they're looking for, but you're still offering them a way out certainty. It may not be what they're looking for, but you're still offering them a way out certainty. It might be lower than they thought. And if they want to take the chance that the market recovers, that's up to them. But you know, a lot of people will say or I've heard realtors say that, well, you'll, you'll offend them. Well, who cares?

Like they just, if they're offended, they can just say no. At the end of the day, you have to think about yourself. Yeah, being offended is a choice, right? Like if someone's offended that's their problem, not mine. Yeah, because if you're paying 10% more than you should, let's say you're thinking about retirement at age 55 or age 60 and you're paying 10%, how long will that delay your retirement? That might delay your retirement by a year or two. Like I'm just throwing numbers out there, but you have to think about it that way. I think at the end of the day, if you start putting emotions in,

that's when you can make some big mistakes. And I've seen it where people overpaid for properties just because they got emotional and didn't want to sell. I think first time buyers are really the ones who are most likely to do that. They've never made a transaction before, so they are more likely to make a mistake. They just haven't done this before. a transaction before, so they are more likely to make a mistake. They just haven't done this before.

They're younger, so they're more likely to use a young realtor who might also be in a similar position where they haven't, you know, don't have a lot of experience, and they have a qualitative incentive to overpay because they're like, oh, this is my dream home, right? No investor says, oh, this is my dream investment, and I'm gonna pay 11% more than I should for it

because I just wanna own own it and I'm happy to eat the cost. It's like only a homeowner would really make that qualitative decision. The thing that you mentioned about retirement, that to me is really interesting. I've never really quantified the cost of overpaying. I've always just said 10% on a million dollar house, which is the average house in the GTA is like 100K, right? GTA is like a hundred K, right? Like those are high stakes from my perspective. Like if somebody would be like,

yo, go write, can you write me a check for a hundred thousand dollars? Just, you know, because whatever, because you really want to own your house. They'd be like, no, right? Like, but yeah, they'll go and take that risk. But to me, like the way you quantified it is like, over time, like losses compound just as much as gains. And so if you're in a loss position and that's an opportunity cost, that's an opportunity cost of 100K that you could have been putting into Bitcoin or stocks or another real estate investment or whatever it is, that like you said, over the 25 years that you're expecting to own this house, that becomes a really really big a big potential loss, right?

And that could could slow you down substantially in your financial goals. Yeah, exactly I find sometimes people just think too much in the short term and don't think about long-term implication And I know I use a retirement but think about it you delay your retirement let's just say you delay from 58 to 62 years because you paid a bit too much and you had to work a couple extra years because you just couldn't afford your retirement because you couldn't make as many investments as you wanted because you're paying down your mortgage. Well, from 58 to 60, those are pretty good years for the most part, right? If you want to be traveling and the older you get, the more risk that you get into health issues and your

quality of life goes down. So it does have some bigger implication, more holistics if you'd like, but sometimes people just kind of forget completely about those and they're say, they just say, Oh, you know what? I'll work until I'm 65. It's not the end of the world. And then they don't realize that they're retiring five, six years later and they can only travel for a few years because their health starts degrading after that. I know some very healthy people in their 70s, I'm not trying to say that to everyone, but the reality is the probabilities of getting sick and less mobile, they do increase as you get older.

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I encourage you go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I'll see you there. Aside from condos, what are you seeing from single family homes? Because there's a lot of

lack of better word. I'm going to say some housing bear porn on Twitter on X where they're posting on Twitter on X where they're posting like from house Sigma I think are one of those sites people bought during the pandemic in 2021. And now they're sitting on, you know, half a million dollar losses because they paid two million for a single family home in a GTA suburb of Toronto and now it's worth 1.5 million. What are you seeing in terms of that? Because my understanding is if you're more in the Toronto, Toronto area, those have held up relatively well, but as you get out more to the suburbs, that's where it's being more impacted. Yeah. I think basically you saw, you're seeing a re-urbanization of demand with the reopening of the office, like Toronto's return to office is actually one of the strongest ones in North America.

And you're seeing banks mandating more. So people want to live closer to the core because Toronto's traffic is actually, it was like the third worst in the world last year, right? And it's far worse than, it's actually seen the worst deterioration in traffic. And so, and I think that this is happening and this is a global trend, right? Because this isn't just the the worst deterioration in traffic. I think that this is happening and this is a global trend, right? This isn't just the GTA or like you're seeing this all over Canada. People are all kind of moving back into urban areas, but all over the world as well. I think something like basically you saw it in China, right?

All the people moving off the farms into the urban markets. I think something like 70 or 80% of the world's population is expected to live in urban areas like within the next 10, 15 years. For what reason, I don't know. Like I'm not an urban area kind of guy, but that includes like kind of your suburbs. But all of this to say, like this urbanization of demand

is visible in certain markets. So you're seeing like in the 905 and 416 in Toronto, 905 detached has been far more impacted on a price basis on a year over year than 416 detached. 416 detached has been relatively resilient because of what you mentioned, they're not building any more of it. Whereas the 905 is kind of has potential to expand because they can expand their municipal area and unlock new land and service new land, whereas Toronto, they're tapped. All you can really do is build high-rise or more density on those existing lots.

That's the other piece is that Toronto has actually up zoned the entire municipality of four units. When we go back to that conversation I had about the input value, all these developers buying land, if they're a manufacturer, the land is their input. Well, the input value hasn't changed. You can buy a house for – you can buy a lot with no house on it for, I don't know, a million to 1.5 in the City of Toronto. Before you could only build one unit on it.

Now you can build four units on it. And so, your output value has changed relative to your input value. And the City of Toronto is actually going to vote on putting six units on that. That's helped prop values up a little bit as well. Yeah, I think there's a variety of factors. It is interesting though to see 416 detach resilient against the 416 condo market getting absolutely smoked. It's a product type question, but it's also, it is like you mentioned a geography question. Yeah, I guess a big supply thing, right? That also, it is like what you mentioned, a geography question.

Yeah, I guess a big supply thing, right? Like that's at the end of the day, it's probably that. And I guess too with the 905, wouldn't it be a bit of result of what we saw during the pandemic? Like not for sure, interest rates aside more, the fact that people could just work remotely and a lot of people just figured, you know what?

Can't, I can afford, you know what can't you know I can afford uh you know not a great house if I'm looking the 416 maybe it's a semi-detached that will need to be renovated for two three hundred thousand dollars I can afford that it's not bad but if I go to the 905 for the same price I can get a single family home and I can work from home so I don't really care for the commute. And now I guess there's a reversal of that and you're seeing that reflected in those home prices. Would that be a decent assessment or?

Yeah. I think this is something you're seeing in not just Canada as well. You're seeing this in the US market where you're seeing a reversal of those COVID trends. So, during the pandemic, you saw a lot of people leaving New York, California and going to Texas, Florida, et cetera. And now you're actually seeing people moving back. So if you look at like a Zillow map in the US, it's actually, you're seeing growth in New York and decreases in prices in Texas and Florida. And it's just these cycles, right? It's ebbs and flows. And it's the same thing that happened in a lot of places across Canada where people were moving from Vancouver into wine country because they only had to go to work one day a week.

Now during that period of time, rates were super low. Everybody was getting stimmy checks. They thought the market was invincible. They went and they spent crazy money on all of these suburban properties. I never got a stimulus check though, so I don't know. Well, that's why you didn't go buy a nice house in wine country, right? So, the 905 was the same thing and cottage country around Toronto, right? Like cottage country around Toronto was like absolutely nuts. There was this huge increase in prices in the 905,

705, 519 areas around Toronto. And then what happened was now all of a sudden people got to go back to work. And it's annoying to have to commute two hours from Coorthill Lakes or Muskoka or Collingwood to Toronto now that you have to be in the office more. And so it's like, okay, well, we're gonna sell that and we're gonna move back to the city. And so now you see this big flood of supply

in the exurban markets or suburban markets around a lot of cities, not just Toronto, but Toronto is the easiest example to use because it's the most visible. You saw it in Toronto, you saw it in Calgary, even some of the mountain properties there. I think even Montreal, Ottawa, et cetera, experienced these phenomena. Yeah, that's definitely something that's happening. I guess overall, it's a bit of a mixed bag across Canada, and I guess we'll focus, still focus a bit more in Ontario, but what's your outlook for the next, let's say,

five to 10 years? Like, where do you see the market going, whether it's the condo market or the detached market? Is it going to be kind of flat for a little bit? Is, do you think the government is going to try to implement some policies to help stabilize prices or on the other hand, more try to help affordability, which kind of conflicts against one another, if you ask me, but I know they've been, the way they've been talking. And I know before Trudeau Laffey had a candid interview where he was basically saying, yes, we need to get it more affordable, but we also know that a lot of people are relying on the

value of the real estate for retirement. So it can't go down too much. Are they still trying to do both things? Well, I think the new housing minister mentioned that they also, well, he walked it back, but he did originally say say that they felt that they wanted home values to not come down too much. And you can restore affordability to some degree. I think a lot of people don't realize house prices have come down a lot, right? We saw the biggest drop in Canadian house price history off of the 2022 or 2021 peak, and they're still grinding down.

And so, let me answer the first question, which is, what do I actually think is going to happen with pricing? I think that I've said for a long time, I've said since like 2017 that the Canadian housing correction, the setup was identical to the 1990s. And so if you want to see what's going to happen, just look at what happened in the 1990s. It's very, very simple. We saw a big drop in 89 into 90 and then basically prices grinded down for four years very slowly. If you look back, it looks like a sideways market. It looks like prices basically were flat.

That's kind of what we're in right now. Prices are down maybe 2%, 3%, 4% in some markets. They're up in some markets, but at a national average, they're down ever so slightly. And then that period, we've been like that for two years, basically, since the crash in 2022. So prices dropped really steep in Q1 2022. And then basically since May of 2022, they've been slowly grinding down. What happens after that is rates get cut. We go through a recession.

We start seeing the government pumping money into the economy through quantitative easing and make work projects and fiscal measures to try and stimulate the economy. It works. The economy gets stimulated. Wage growth happens. Rates are still low. And now affordability starts to improve because wages are going up

and house prices are still suppressed and interest rates are still suppressed. And so people start buying houses because they can afford them again. So that's kind of number like that's that's kind of my perspective is it's going to probably grind down a little bit further from here. I think, you know, depending on what happens, how this trade war thing shakes out and a couple of other policy pen strokes, I would say probably we'll see a bottom in like 20 late 26 early 27. And then you we'll see a bottom in like late 26, early

27. And then you start to see a really slow recovery. Like, it's not going to be back to 10%. You know, people are going to be very cautious reentering the market. And then, you know, if you look back to the 90s, it took from 89 to 19, sorry, to 2002 for house prices to get back to their nominal peak. That's without adjusting for inflation. So 13 years. And I think it's going to be a very similar setup. I think without adjusting for inflation. So 13 years.

And I think it's going to be a very similar setup. I think it would be probably 10, 15 years. If you adjust that for inflation, in the 1990s, it took to like 2012, right? So that's the other thing that a lot of people aren't thinking about. And you saw some big interest rates went way down during that period of time too. Yeah. Yeah. So then the next question is, is there a policy measure that

could happen that they could resurrect the market? Yes. And I think it will happen. The first one is the removal of the stress test. So kind of to go full circle to the beginning of this episode. OSFY's been running a study. It hasn't gotten nearly as much publicity as it should, honestly. We've done a couple of episodes on it. We've tried to have Osvi on to talk about it. But basically, Osvi right now is studying, they're running two stress tests side by side. Are you familiar with this?

Like the loan to income? No, I'm not familiar. I'm listening, yeah. Yeah, so they're- Listening, it was slightly alarm, but listening is also good. So they're still stress testing borrowers at minimum qualifying rate, MQR of 5.25% or your

contract rate plus 2%, whatever is the lowest. Sorry, yeah, whatever is the lowest. Whatever is the highest, right? Yeah. Yeah, sorry, the higher. Okay. Yeah, the higher of, yeah, the 5.25%. So everybody's being stress tested.

If you're qualifying at a 4% fix right now, you're actually qualifying at 6%. So they're running that existing B20 stress test. But at the same time, they're also running another stress test on the bank's books, which is that the banks have a loan to income cap. And so there's a percentage of their mortgage book that can be allocated to a certain loan to income and their total loan to book has to be under a certain loan to income. Yeah, I remember reading about that. And only I think, I can't remember the exact percentage, but only a portion of their book

can actually be above that 4.5X income. So to me, them removing that stress test and shifting it to a loan to income disproportionately benefits first-time buyers, which is a good thing by the way, but that's what policymakers want. They want investors to be negatively impacted. And so, investors will be limited by this loan to income cap, right? Because if I'm an investor and I have 10 properties and my income, and the only enough income to sustain one property, now all of a sudden I'm toast. Right? Now I'm going to have to- But don't you just push them towards private lending at that point? Oh yeah. You would go to the B side, but your capital cost is way higher, and so you're

going to have to sell, right? Even going to the B side is plus 100 basis points. If you go to private, you're plus 500 basis points, right? Your rates double when you're pro forma is toast. Your deal doesn't make sense anymore. But now all your first-time buyers are no longer qualifying at 6%, they're qualifying at 4%, which massively improves their buying power, right? Massively improves their borrowing power. It doesn't

change their monthly payment at all. Their monthly payment, they were still paying the 4%, but it drastically changes how much house they can qualify for, which has upward pressure. That improves affordability, perceived affordability. It doesn't actually improve their affordability on a monthly basis, but it improves what they are capable of buying. So it lowers the barrier to entry, which could achieve both goals, right? So first time home buyers feel like they're getting more affordability

and it props up the housing market. So that's number one. Number two is the stress test is set to expire in 2027. I cannot see that, or sorry, not the stress test. The foreign homeowners ban is set to expire in 2027. I cannot see them renewing the foreign ownership ban. Really, huh? You don't think they'll renew it? I'm surprised they renewed it this time, to be honest with you. I'm surprised they extended it by two years. I think if they want to resurrect, if they want to get all these condo buyers

back who are the ones funding these projects that we mentioned earlier on the episode, they need foreign buyers. Nobody else is lining up to lose money on condos. You need the people who have some sort of perverse incentive or some sort of ulterior motive to get money parked in a Canadian asset that's hidden from maybe a foreign regime or whatever it is or lose money or like tax loss harvesting or whatever. Some reason that they're an irrational buyer, you need them back in the market if you want that freefall to stop happening. Not to say that's a good idea, but it wouldn't surprise me if it was an outcome.

Yeah, that's interesting. I never thought about it. It just feels like it would be a hard sell for especially new home buyers if they start realizing that they're competing against foreign buyers? Well, I think it didn't get a lot of attention that they were extending it, even though they tried to make it get a lot of attention because they wanted to look like they were doing something. The fact that nobody's paying attention to the OSFIE thing, the stress test that I mentioned, I think a lot of these policies can sneak by

just based on the fact that they expired, right? Or that they're not an official thing, right? Like if Ausfee removes the stress test, it'll take a while for everyone to know because they'll have to go qualify to a mortgage to see the practical implication of that unless they're reading all the news and running calculations on their own.

Foreign buyer, it's the same thing. Like if they just kind of let that expire and all the foreign buyers just slowly trickling back into the market, I don't know if the impact will be as profound as... I don't know if it'll be substantial enough to catch people and make people start protesting it. Yeah. I guess I assume that most home buyers or first-time home buyers are doing all their proper homework when buying a home, which is probably not the case. So I think that's an assumption I shouldn't be using. But aside from that, anything that we kind of missed in terms of the markets, even outside of the GTA, anything that's really catching your eye or that's a

good overview of what you're seeing right now? really catching your eye or that's a good overview of what you're seeing right now? No, I think I maybe I'll selfishly use this to segue to our follow-up episode, which is going to be about REITs, which is, I really do think that it's a high risk environment for people to be buying direct investments in real estate. But if you like real estate and you want to invest and kind of have something that's liquid that you can park your money in and just clip coupons, get a yield for the next year or two while you wait out the storm that we just described for the last hour. REITs, I think, are one of the best ways to get exposure to that in the stock market.

That's what we're going to do an entire follow-up episode, part two of this episode on the Canadian Real Estate Investor podcast where you and I are going to talk through REITs as a way to get exposure to the real estate market. Yeah, exactly. I think it'll be fun. There'll be some back and forth. I'll go over some of the basics just so people are not as well versed investing in REITs because even I know some real estate investors that just invest in hard ass and then don't really touch REITs. I think sometimes they don't fully look at the right metrics because it's a bit different when you're starting to look at reads versus individual properties. So I think it'll be a fun episode. Some of the common metrics that are really useful for reads.

It'll be fun. And I know you'll you'll chime in on some specific areas to that you currently like for reads. For sure. Okay, well, this was a great episode. We'll have the follow-up. So the second part of this, like we like to do, it'll be on the Canadian Real Estate Investor Podcast. So once both episodes are out, we will have some links in the show notes. Likely this one will be coming out first, but I'll also put a link to the second one when it does come out.

So we'll update that. If you like what you heard, just make sure you go to the Canadian real estate investor podcast. You'll get the episode I'm doing with them. I've done some more in the past, but also is cohost Nick, who is great, has a great radio voice and also is a pretty good looking guy. So he's got best of both worlds. So make sure you, you don't miss that and make sure you don't miss this show in general. And we'll see you on the next episode of the Canadian real estate investor world. Make sure you don't miss that and make sure you don't miss this show in general.

We'll see you on the next episode of the Canadian Real Estate Investor Podcast. Thanks for joining, Dan. My pleasure. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.