The Wealthy Barber Podcast - #75 — Daniel Foch (Returns): Canadian Real Estate Update — What Happens Next?

Episode Date: October 13, 2026

Our guest this episode is Daniel Foch — Chief Real Estate Officer at Valery, host of The Canadian Real Estate Investor Podcast and one of Canada's most-followed voices on housing data and market analysis. He first joined us back on Episode #35, and with so much having changed since then, we brought him back for a full update. In this episode, Dave and Daniel dive into the current state of Canadian real estate, starting with where prices and sales actually sit in Ontario and BC today. They break down the Toronto condo crash and the supply crisis it has created, why unrealistic sellers are keeping the market stuck and whether rents are going to keep falling. They also cover how tariffs and AI could push unemployment higher and what that would mean for housing. The conversation also explores the policy side of the picture, including CMHC's financing programs for rental developers, the government's housing incentives and why so many municipalities are now cutting development charges. Daniel explains why builders have stopped building small homes, lays out his concept of "houseflation" and shares his take on the biggest macroeconomic surprises of the year. Along the way, Dave and Daniel tackle whether downsizing baby boomers will flood the market, how immigration cuts are reshaping demand and how Daniel is using agentic AI to rebuild the way real estate businesses operate. Whether you're a homeowner, a renter trying to decide when to buy or simply trying to make sense of where Canadian housing goes from here, this episode is full of data-driven insights and candid analysis you won't want to miss.    Show Notes (00:00) Intro & Disclaimer (00:55) Intro to Daniel Foch (03:35) The Current State of Real Estate in Ontario and BC (06:44) How Tariffs and AI Could Impact Unemployment (11:22) Why Unrealistic Sellers Are Hurting the Market (13:44) The Toronto Condo Market Crash and Supply Crisis (16:20) CMHC's Financing for Rental Developers (19:35) Are Rent Prices Going to Keep Falling? (20:18) The Impact of the Government's Housing Policy Incentives (22:53) Why Municipalities Are Cutting Development Charges (26:51) Why Builders Don't Build Small Homes Anymore (28:52) "Houseflation" (35:10) The Biggest Macroeconomic Surprises of the Year (38:53) Will Downsizing Baby Boomers Flood the Housing Market? (41:33) How Immigration Cuts Impact Canadian Real Estate (44:03) Using Agentic AI to Revolutionize Real Estate Businesses (48:52) Conclusion

Hey, it's Dave Chilton, the wealthy barber and former Dragon on Dragon's Dent. Welcome to the Wealthy Barber podcast. Well, we'll be hosting some of the top minds in the world of personal finance. Yes, that's to balance me out. The podcast is about making this subject not just easy to understand, but dare I say, even fun, honest. Whether you're trying to fund your retirement, figure out how to build a down payment, save for your kids' education, manage debts, whatever, will be here to help you.

You do it. Before we jump in, a quick but important note, nothing we discuss here should be taken as investment advice. We don't know you and your personal financial situation. So we're not here to tell you we're specifically to put your investment dollars. We're here to educate, get you thinking, and we hold entertain. But please do your own research and or consult with your financial advisor before taking any action. Hey, it's Dave Chilton, the wealthy barber with the Wealthy Barber podcast. The podcast continues to fly everywhere I go. People come up and talk to me about the podcast and no, it's not just Mo and family members. I'm talking strangers when I'm at the Royal York and Toronto, when I'm in a golf tournament, whatever. People come up and say how much they

enjoy it, how great the guests are, how much they've learned. So we are thrilled at the impact the podcast has had, at the pickup rate it's had. And again, it all comes back to the guests. We've been blessed to have the top minds in the country. Today is no exception. It's a return guest, Daniel Foch. One of my favorite guests that we've had on the show is a true real estate expert. He is the founding partner of Valerie.ca. We'll talk more about that company later. He is their chief officer around the real estate area, obviously. We mentioned before when he was on the show, he graduated from University of Guelph in their specific stream to real estate. Great course, by the way. I've always applauded well for doing that. I think it's been a wonderful course that's

really made a big difference. A lot of the big players in the industry went through that course. He's picked up all kinds of designations post-graduation, including taking courses on data science, valuations. This guy is sharp. I like his market assessments. They're data-driven. They're very insightful. I've learned a lot from him over the years. Now on a downside, my partner thinks he's very handsome and has fantastic guys. So that's a little bit annoying. That's a negative. The other thing about Daniel that kills me is last time he was on the show, he's on our comment section arguing back and forth.

Got to keep the engagement. Yeah, he is really good at that. You know me. I'm so nice to everybody. If they criticize me, you have a fair point. I get your point. I mean, he's like right back at them, which I thought was great. And it really did keep the engagement flying.

So wonderful to have you back on again. Thank you so much. Very happy to be here. And I'm glad to hear the podcast is doing so well. I have three young kids. So I don't get a ton of time to listen to podcasts, but yours is one of the few that I make a point. to listen to. Well, thank you. And you, of course, have hosted your own podcast for years,

the Canadian real estate investor with Nick. We've got to mention Nick Hill or he'd be mad that we didn't say his name. But that's also a great podcast. And you have a big following, in fact, one of the bigger followings in the Canadian podcast scene. So congratulations on that. Thank you. Yeah, I appreciate it. I guess we're still, I don't know if you call Ron's podcast. I think it's more a mortgage podcast than a real estate podcast. But if we exclude him, I think we're Canada's number one real estate podcast. No, I think you are too. And we've had Ron on a couple times. We'll probably get him back on one more time before my retirement. He's a fan favorite with his bluntness.

He actually watches his language quite carefully when he's on our show too. He's been relatively well behaved. It's hard for him, you can tell. It's very hard for him indeed. Okay, let's talk a little bit about the Ontario and BC real estate markets. You and I addressed this 10 months ago when you were on the podcast. And I'm going to pat us both on the back because we both said at the time in other interviews and on the podcast that we've been.

felt the markets were going to continue to go down, that it was going to continue to be a challenging time. A lot of people didn't agree with that and felt the bottom was near. And of course, that's not been the case. We ended up being right about that. What are you seeing right now? Just math would tell me that the bottom is closer than it was last year. The further you go down, the closer you are to the bottom. So the risk begins to evaporate as prices fall. But if you look at just pure fundamentals and Ontario and BC, you can still use a price to income fundamental for whether or not the market is going to work and where it might settle on the price side. And what we've found is a lot of people, they're quick to use like a four to five X price income ratio because that's what

mortgage lenders will qualify you to do. But Vancouver and Toronto or BC and Ontario generally now have always defied that and they've fallen into slightly higher channels due to things like the wealth effect, right? So people have more money. They have more equity. Not all of your buyers are a first time home buyer who are using 100% debt. That's right. Toronto should probably settle somewhere in the 5 to 6 range. That's kind of its historic channel and it's currently at 7x. So I would say there's a little bit more downside risk if wages don't accelerate massively. There is a case for wages to grow actually. Wage growth was decent even with the last unemployment print. And the government has made it pretty clear that they're willing to spend

a near infinite amount of money to keep the economy propped up. So that would eventually could materialize a little bit of an improvement in wage growth. Vancouver or BC is a little bit higher on the price to income spectrum than Geronow and its channel kind of is in that six to seven range. It's still at like nine, ten. So I think that both of these markets, they're not, the bottom isn't going to fall out of them. Your interest rates rising is definitely a headwind for both markets. We just saw the US Fed hike. If Canada has to follow suit to try and protect the Canadian currency, the Canadian dollar and avoid imported inflation, then we'll see the bond markets already communicating that rates should go up.

Fix rates are rising. More borrowers are pushing into variable rates now as a result, which didn't work out while last time we did that as Canadians in 2021. So I think that there's still a little bit of downside risk in both markets. Not I would say the worst is behind us by a long shot, but it wouldn't surprise me to see another 5 to 10% downside risk in both Ontario and BC. I think the other piece that's interesting is we were having a bit of a tail of two markets happening in Canada where you had Ontario and BC and then you had the rest of Canada that was

doing fine and hitting all-time highs and heading into the toward towards the spring market of this year. And now it usually would roll over in the summer, but a little bit more of an outsized roller. So the question is, are those markets now being hit with these economic headwinds and the steam being taken out of a lot of those? Your Alberta, Saskatchewan, Quebec and the Atlantic provinces where they were really, we were seeing them hit all-time highs just a couple of months ago. I guess only time will tell. Do you worry about the effects of the tariffs and will they start to affect manufacturing in such a way that it affects employment, affects people's uncertainty levels and therefore willingness

to spend? And then you throw on top of that AI and what it could do in the next two to five years on the employment front. I mean, that has to be something in the back of your mind thinking could affect real estate. Absolutely. I mean, Tiff Macklem said it when he was pressed by Pierre Paulyev during the Trudeau government that the biggest reason for people to not pay their mortgage is not. having a job. So unemployment, yeah, like interest rates hurt and inflation hurts, but those are

slow bleeds. Like it would take me a long time to run out of money if my mortgage went up $200 a month or all of my costs of living went up $500 a month. But if I lost my job, it would take me a lot less time to run out of money and not be able to pay my mortgage. So unemployment, if you look at the Canadian Bankers Association puts this chart out on a monthly basis, And unemployment tracks mortgage delinquencies with near perfect correlation. Yeah. And so I think that on the manufacturing side, I think a lot of the, we actually added manufacturing jobs in the last couple of prints.

I think that a lot of that damage has already been done. And, you know, we saw Stalantis leaving and now they're talking about retooling and there's some union stuff going on. Oshawa, there's some big changes happening where they're going to have to try to keep it alive. They're going to try and produce a vehicle that would be only sold domestically. And it does definitely make me fearful. But on the same token, I think that Canada is progressing towards a more diversified economy.

I think we're playing in the right spaces. Now we're thinking about the right things. And so there should be more opportunity for economic growth and job creation as a result. And frankly, a lot of those industries in Canada, we're not really a compelling manufacturing hub. And if the U.S. wants to do that, when their unemployment rate is 4%, they decided they wanted to onshore a bunch of manufacturing jobs. I don't understand the strategic play to really tethering ourselves so much to manufacturing. I think those are grandfathered jobs that they're big job bases that are generational. I don't think it's really where you're going to build the future of a productive economy.

And so I actually think that the more that we can diversify into, the things that were exceptional and maybe the best in the world at, natural resources. And even in the technology space, we have some of the best in the world, if not the best in the world, at the lowest wage rate and with the Canadian dollar exchange, I think if we can really zoom in on that, I actually think will be okay, so it doesn't concern me a ton. On the AI side, I work for a company that has become an AI company. We build agentic AI tools to make realtors more productive. And from what I've seen, I think that it's going to have profoundly positive impact on GDP. And I think that it will really sort for who is actually doing work and who isn't. And the people who are already doing work are going to do a lot more work and the people who already aren't are going to get left behind. And so I think that there is this opportunity where it's probably

going to exacerbate disparity a lot, but I don't know if it's going to blink it. Yeah, it definitely will do that. It already is. Yes. You can definitely see GDP growing with that distribution problem being exasperated to use your word. And that worries me. And I think entry level jobs, as the experts have said, are most potentially under siege on the next three to five years. Metamuse coming out to me really, I think that they unlocked a new frontier because there's sort of this privacy wall that has to be passed for people to like when I was really leaning into this stuff early I love AI and I love agentic AI and as somebody who comes from a data background it feels out of place for some people who have watched what I do more on the economics and data side but it is

really the most powerful data processing tool we've ever seen in our lifetimes and so that's why I'm so attracted to it and it gives me better outputs because I have exceptional inputs because I'm good at data but the the way that we've seen it materially impact our industry and most industries aren't exceptionally complicated is profound. And we just kind of got through what I would call your early adoption phase. So all the people on X, on Twitter, those would be, that's a very technical crowd. And then OpenClaw, I remember when I was first talking about it, people were like, oh, this is so high risk, guardrails, blah, blah, blah. And you're one of the first people to throw yourself into OpenClaught.

Oh, yeah. To be honest, you, I first heard about OpenClaw through all of your posts. And then I started learning a lot more about it. I mean, you are into the AI. I worry that you're going to leave your wife and kids for an AI agent. I see that in our future. But but the cool, if anything, it's the opposite because it frees up so much time. Yeah, good point. I get to spend a lot of time with, like I'm not, I don't do busy work anymore. Right. It's done for me. And it gets done on a variable cost, which is incredible, right? I don't have to have a salary. Like, I'm probably saving five to $10,000 in salaries a month. Amazing. Things that are done by AI right now. Yeah. Let's go back to the real estate market. You and I talked about one of my fears was that as the market headed down,

Canadians were not accustomed to that real estate agents, frankly. were not accustomed to that. And too often I was seeing homes listed as a hope for price. And then the market continued to sink when that price was not being hit. And had the agent listed, had the seller listed at the appropriate price, they would have ended up achieving a much better result. That trend since you and I first talked about it 10 months ago, I would argue worsened. And too many agents just didn't grasp the fact we're in a new environment with falling prices.

Yeah, I would completely agree. I think that the big issue is that most, agents don't have a compelling value proposition. And so their value proposition is being agreeable with their client. And honestly, right, they're order takers. There's two, I think rich dad, poor dad talks about your cash flow quadrant and people who are self-employed. So they trade their time for money. And then there's business owners. And business owners would make a strategic decision to say, I'm not going to take this listing unless you're going to list at a realistic price. Right. And those agents are doing fine and they're pricing things appropriately, but they're

losing listings to the ones who are self-employed. I'm just looking for a new boss who says, this is where we're going to price my house. And then they're going to leave it in the market for long time. And so you have a lot of sellers who are really stuck. And the more interesting phenomenon, and I think that the fall market is really going to decide whether or not this trend breaks back in favor of buyers. But if you look at a market like Toronto, sellers are saying, here's my price. It's 2022 price, my aspirational price. And if they're not willing to meet buyers where they are, then they just leave the market. And that's how a market reaches equilibrium. It's a gradual process of more buyers joining the market as prices fall and more sellers leaving the market as

prices fall and they're not happy with okay I'm not going to I'm just going to take my product off of the market if supply demand continues to tighten in the same direction that it has been for the last couple of months your like bottom would be I mean my original timeline was probably 12 to 18 months out from now I would probably shorten that by 30% just because sellers can regain control of the market the the question mark on that becomes what percentage of sellers actually need to sell and actually have to chase the price down and have to go meet buyers where they are are to execute, but it seems based on how many people are leaving the market, that number is shrinking every day.

I think that's exactly what's happening. And you're right. I think the fall will tell us whether that's going to play out in the way you originally predicted or be a shorter timeframe. You know, when we talk about the Toronto condo market, the BC condo market on the show, we often take criticism. People say, ah, not everybody lives in Toronto and we don't all live in condo. Stop talking about that.

But my argument to our listeners is it's truly fascinating. It's historic in a lot of ways, how big a problem this has been. So let's go to the Toronto condo market. Talk to me a little bit about the details. Where are we now relative to where you and I spoke 10 months ago? Still down. So we're down another. And I think we probably said that it would be, I think we were both in agreement that

it would be down another 5 to 10% range. And we're down about 7% on a year over your basis on your Toronto condos. It depends on the month that you're using to read. But like somewhere in the channel of 7 to, I think the highest reading I saw was like 11 or 12%. Prices continue to fall. You still have this lingering issue of all of these pre-construction condos that These builders aren't in a hurry to finish these buildings and try and close them out.

That problem keeps getting pushed. And a lot of them are trying to figure out new things. So maybe they're self supplying and rolling it into a rental fund or selling to one of these big mega funds that's evolved. But there's so much, like you have two years worth of brand new supply that has been trickling into the market over the last two years. Until that stops and we start seeing a decrease in housing starts, which we're just starting to see now because builders aren't. The condo model is unviable. So builders aren't building condos. And the rental model is becoming unviable as a result of bond yield.

There's no product in the world that is more sensitive to the Canada five year bond yield than CMHC, MLI select financing. It's a 50 year amortization. So 80% of your mortgage payment for the first five years is interest. So your bond yield goes up. It doesn't matter of vacancies are rising or rents are coming down. If your bond yield goes up, your pro forma breaks pretty quickly. So now we see, so we talked about the, your resale market.

sellers exiting and that supply tapering off. I think you're starting to see the same thing on your brand new. We still have an absence of demand. If demand comes back on the timeline that the government has forecasted in their economic updates to us, which I would say, if anything, that would be the latest date that they would probably resurrect the immigration curve. We're looking at 2028 before you end up back in a scenario where excess demand is building, which would be a reasonable period of time for us to say, okay, let's let things burn down a little bit. First, you want to get rid of, you need some economic Darwinism to take place, right? We want to get rid of some of these bad models and punish the people who maybe made mistakes

for too speculative, reckless, et cetera, and not encourage that behavior for the next cycle, rebuild it on a proper foundation and then do it right this time. And I think that's probably the timeline that I would be expecting to start seeing a recovery take place sometime in 2028. Do you think we'll see more government involved more they come in as the buyer and start converting some of these to more affordable housing? I do, but I think that they're coming in as a buyer in a very unique way. They've been bailing out the condo or the development sector for four or five years.

I got very lucky. I called structurally, and people said it was crazy when I said that the government was going to bail out the condo sector. Nobody in the industry agreed with what I said. But I called every single mechanic almost perfectly that they would use to do that. And so let's go all the way back to like 2022. The model started breaking. You have this absence of the pre-construction condo buyer as a result of speculative bid not making sense.

Prices were falling, interest rates were rising. And so we don't have people lining up to spin the wheel for a Rolex at pre-con condo launches anymore, which is actually a thing. But the government introduced a program to help that pipeline pivot towards rental. And that was called CMHDMLI Select. It's quite literally the-y impactful. Yeah, massively. Yeah.

And yeah, it's like Charlie Munger says, show me the incentives and I'll show you the outcome. Absolutely. Absolutely. Good example. Yeah, good example. Almost overnight, you could see our supply pipeline shift from ownership supply to rental supply. And this is the most insane, it's great, it's lucrative,

but it's the most insane credit product on earth. It is a 50 year amortization. It's up to 95% loan to value. And it is only on a 1.1 debt service coverage ratio on the low end. Most people are quite a bit higher than that. I want the listeners to actually think through what Daniel's saying here and how unique this combination of qualities is of the debt. that was available. Again, 95% loan to value. Go through the other ones. It just was an incredible

deal. People couldn't turn it down. Yeah. Yeah. So 95% loan to value. So if you're a first-time home buyer, they get the same down payment as you relative to their total cost. And they're building it. So it's loan to value, not loaned to cost. So in many cases, if your project costs a million dollars, but the value on the end based on the rents is 1.1 million. You get 95% of the 1.1 million. And people were actually walking with cash on top of the deals, which is like, you know, the perfect model for real estate. Then you have a 50 year amortization. So as a first time home buyer, you have 25, 30 year amortization now. They have double that. So they're paying close to no principle or half of the principle that you would be paying as a normal mortgage

borrower. So that buys down their monthly mortgage payment. Then on top of that, they have the lowest interest rate in the market, even lower than first time home buyers. And they only have hit a 1.1 debt service coverage ratio, which means that your cash flow only needs to be, your net operating income only needs to be 10% higher than your debt total debt service coverage and all of your expenses on your pro forma. Of course it worked. This made a lot more deals viable, but it also made the margins a lot slimmer and that increased the risk. And so one variable in that whole thing changes, most notably bond yields and things start to break pretty quickly. people who are already in the pipeline are having to buy down their mortgage amounts.

So they're having to inject capital on the back end. And now rather than going 95, they're 80% loan value in order to make the numbers work. And then anybody who was underwriting a project at bond yields from two or three months ago, looking at their model today and saying, we can't do this anymore. And that constricts a pipeline almost instantly. Yeah, that's been fascinating to watch all of that play out. But we're still in a position of having a lot of rental inventory coming on to the market. Do you still see rents heading down in a lot of the major centers across the country?

I do, but when things fall, it's like a reverse exponential curve, right? So they fall pretty steeply at the beginning. And then you slowly see your year over your increases flattening. And we're definitely getting to a point where you can see. Yeah, you can see that, yeah, we'll probably bounce along the bottom for a while there. We'll see rents down maybe two, three percent rather than 10, 15 percent. Totally agree. Yeah, six months of zero percent.

And then you start seeing, oh, it's up one. percent and one and a half. It's still not beating inflation, but it's, we're starting to climb again. Yeah, I can think that's exactly right. Walk the listeners through the government changes that came through six months and a year ago, the pressure on the taxes, the development fees. What are your thoughts? Have they actually come in and been impactful in the marketplace? So what the government did, and this was layer number two of the bailout, which was that they were going to have to remove tax structure, which is actually the most meaningful way that they can impact direct mainline to the price of a brand new house. Before,

In April, they removed GST and HST on brand new homes. They did it in November of last year for new homebuyers. And I think, I don't know if you spoke about that or not, but I said, watch how quickly they change this to everybody because they're going to realize that no first time homebuyers can afford brand new product. Yeah, and you have said that many times publicly. So you're not bragging there. You really have.

I've heard you say that many times. And also let's mention that for purpose built rentals, the CMHC product that I had mentioned, they've been HST exempt for a while now. Right. So you're balancing policy outcomes. Again, show me the incentive and show me the outcome. You're balancing the policy incentives back in favor of ownership supply. And so homes in your average brand new house in the GTA,

and there's a chart that shows your average listing price of a brand new home in the GTA. And everyone's like, oh, it dropped 10% overnight. I'm like, no, it dropped exactly the amount that a builder can reduce the price now that they don't have to pay the HST or now the buyer doesn't have to pay the HST on a brand new home. So new home sales, and we're coming from a low base. So you have a bit of a base effect here, which means last year's number was very low. So the year over year number could read very high on a not a meaningful jump. But we're up 160% in new home sales for ground base for single family freehold homes, not condos,

because condos not as agile. Like they can't reprice an entire thousand unit building if they've already pre-sold 50% to somebody at $1,400 a foot. And their cost structures, $1,200. Yeah, it just doesn't work. So those are the back-end, backroom deals that we're hearing about where there's funds or the government getting involved. And I think that to answer your original question, I don't think the government wants to buy too many of these. I think that Carney knows that governments aren't exceptional owners of housing. I kind of get the understanding that they're aware of that.

And I think that they probably want to focus on asset classes that are actually going to move the needle that maybe him and his team and maybe for people who are concerned about it, his friends and, you know, cronyism and whatever, that they can actually do really well. So pipelines, major projects, infrastructure, etc. And I would rather they focus on that than housing personally. The new home market is moving. It is far more. You can see it. You can see it when you're in your car and you're driving around now. You can see sales signs going up again, some new builds taking place.

What about the changes to the dev charges? So it's still up in the air. And it's actually funny because somebody from the city of Toronto who listened to your show in the revenue side of things reached out to me to clarify in a couple of points last time we spoke about. this and so development charges in Toronto have with Carney and and Doug Ford went to Olivia Chow and said you have to match in some way what we're doing here and they said we can't get rid of all of it right we need some money to do stuff and as the governments we're probably not exceptionally good at spending money but let's not talk about that we'll just talk about the revenue side and they they agreed to basically reduce for 50% for deals that are within

this but before that they had already done on certain types of projects so like multiplex which is one thing that we focus on a lot with our investors with our audience and basically any mom and pop who actually really wants to try and scale, it doesn't really have a choice but to touch this type of product. They've had deferred development charges for a long time. And deferral helps your pro forma a lot. So you don't have to pay it basically until a 10 year gate and then it gets trickled out. You can get it added to your mortgage principle. So some concessions have been made in deferrals. And I feel like that's the area where there's still the most work to do. And then there's the most impact for municipalities to deliver.

And they haven't, some municipalities have realized that they compete with one another, right? Municipalities compete with one another for residents. And if they make it more economically compelling for residents to be able to move to their city, then they can attract more customers and earn more tax revenue. And some municipalities have learned this. So you're seeing a competition because Toronto is never going to reduce development charges sufficiently enough to really move the needle. You're seeing competition among your first ring suburbs, Mississauga,

reduced development charges significantly. Vaughn did it. Pickering did it. And so those cities are actually trying to capture some of that demand by being able to be price competitive and try and pull a lot of that development activity and therefore new home construction activity and therefore future residents by doing it. And that's a nice thing to see is actually municipality is competing for like seeing a competitive market in governments is like the craziest idea that you've ever seen. But so there's some progress being made. Most of the impact that we've seen so far was done by the Fed and the province. Municipalities, I think should and are going to be forced to try and add more to that.

Don't you think we had to do something because the builders were really in trouble? And they employ a lot of people. I mean, when you look at the resale values falling in price, it was almost impossible for the new homes to compete on price with buyers, not just the first time buyers, but any buyer. And so I think if we hadn't come through with some of these changes, we were going to have an industry in a lot of trouble. residential investment is like at peak it was 13% of Canada's GDP. Crazy.

So yeah. So if we're not transacting houses, that means that realtors aren't getting paid and nobody's crying for realtors, but mortgage lenders aren't making money. And you're a contractor who's building a deck in that house, painting it, or the furniture companies that are furnishing those homes and the moving companies. And there's so many tertiary businesses that if you end up with a real estate industry that's in a recession, which the real estate industry has been in recession for two or three years now, the spillover effects or the ripple effects are pretty violent pretty quickly.

And so I do really think that this was why I felt that they were going to bail out the home building sector was simply because we got to a point, unfortunately, and this is the real lesson to be learned. We got to a point where residential investment was a systemically significant component of Canada's economy. In a perfect world, that would not be the case. And the U.S. learned that in 2008. But it looks like we're just going to keep going back to it.

Again, we are diversifying our economy a little bit. eventually, hopefully growth in other sectors will squeeze that down as a lower percentage of total. But as it stands, it's still a very significant portion of Canada's economy and they're going to do what they have to keep it propped up. Yeah, I mean, I've always said a strong housing market should be the result of a strong economy, not the cause of it. And unfortunately, we got over to the ladder and it sets you up for trouble, no doubt. Okay, I know the answer to this. I want our listeners to know, I know the answer to this, but I'm going to let you respond. A question I'm asked all the time is, why don't we build more smaller homes?

more smaller detached homes. Go ahead. I think that the biggest component is just land value. Land cost. That's it. Yeah. But you look at Texas where everyone's like, oh, there's all these affordable houses in Texas and then they show you, have you seen the rows of those things? It looks kind of like two shipping containers stacked on top of it. It's like, that's a detached house.

It might as well be a town home, right? And here, our land is so expensive because we have artificial land constraints and silly utilities infrastructure distribution systems that are very expensive. If a builder owns a piece of land, and even if they've been land banking it for a long time, which a lot of these large ground-based subdivisions, yeah, have been. High-rise guys is a little bit different. They were kind of buying a more mature, immediate pipeline. But your ground-based stuff, which is what the vast majority of Canadians want to

want to own and live in, your land costs are massive. And then your development charges. And then even if HST's gone now, my sunk cost for that piece of land is so high that I have to squeeze every last drop out of it. And the easiest way for me to do that is go look at all these subdivisions, put the biggest floor plate that I can legally put on that postage stamp and build it as tall as I legally can because I make my margins back on my ability to mark up the square footage that I'm building, not the land.

So that's the reason. Yeah, you need a bigger house to give you more to amortize the cost of the land and the development fees over. And so unfortunately, I don't see this problem going away and that we're not going to see suddenly a lot of smaller homes come up, which is too bad. You know, I love smaller homes. I live in a small home. 1,300 square feet.

And in general, I've lived in pretty small homes for the most part. I like them. I find them cozier, less hassle filled, less costly, everything about them I like. And most people don't need near to the space that they're seeing with a lot of the new homes. In fact, even in the small house that I live in, you can see in the background. I have a room I never go in. You know, it's almost too much space for me. But I don't see this problem changing to your point.

I thought for a second, you're trying to bait me back into going into the boomer thing that we got so controversial. Well, we're going to go there again. Don't worry. Okay. Yeah. So in Canada, we have this issue that you might call houseflation, right? Like everybody says, oh, homes have gotten so much more expensive. But our square footage per capita has grown like, just like tripled over the period of time.

And the number of people per house has been cut down by a third. If you go back to the wartime bungalows when post-war period, the average number of people living in a house was like five or six. Yeah, it was five point something and often in a thousand square feet, right? And so now we're at two. point something in many of the households in 2000 square feet, if not more. Like it's remarkable how much different it is than it was 40 and 50 and 60 years ago. The neighbors of my, I've vacant land on either side of me, but the neighbors of the property, they were telling me in our

houses, I don't know, it's reasonably sized. I have a lot of kids. So, you know, a little bit of extra space for storage and privacy is a bit helpful. But they were telling me, I think nine kids lived in this house when they were growing up. And that was before there had been an addition on it. So, you know, we think about the way that we consume physical space. And it's very easy for us to say, oh, everything is so unaffordable. But if you were to right size your ambitions away from what we're being told as a society we're supposed to own and live in, back to where it was, like, if you just adjust on a square footage basis, home prices are up substantially, but they're not up as substantially as we want

to imagine based on a lot of these metrics that say it's massively unaffordable by comparison to the 1980s. 89 house price to income because of interest rates was worse. And square footage per capita was almost the exact same. Or sorry, square footage, relative cost per square foot based on income was almost exactly the same. Okay, can we hit that for a second? Because I have said that in some interviews lately. Let's go back to 89.

The affordability challenge was as big if not bigger because when you look at the income to the household cost, but then you factor in the interest rates, you're exactly right. We were as pressed then. I think with the idea of that is that's a fix. point in time, whereas the price that you pay is less of a fixed point in time. Sure. If somebody buys today at the same price to, or mortgage payment as a percentage of household income, they're on a 25 year amortization.

They still own the house at that bad price. So I would personally rather see the market skewed negatively by rates than price, because prices are a harder or harder one. And they're more permanent. But otherwise, absolutely. And it's not just 89. It was 81 as well when rates were at 18%. and then house prices to income blew out in 89 before our last major housing correction.

So there's multiple points in history where mortgage payment as a percentage of income was as bad, if not worse than it is to. I know, honestly, I said that in a couple of interviews last year. And people were commenting, there's no way you're right about that and hitting me hard, but I am right and you are right. I'll give you a chart to back it up. Yeah, absolutely. It was as bad.

The other thing that a lot of people don't think about, it's not just how much bigger the houses have gotten and we've got fewer people per household, but it's how much nicer they are. When I grew up, forget the altar wealthy. Everybody else didn't have very nice houses inside. Forget granite countertops. We all those vinyl countertops they would turn up at the corner. I actually like that because if I drop something, linoleum, all of those types of things.

And you always had stuff tacked on the side of your wall and you'd be in instead of this fancy kitchen, you'd have a pencil sharpener attached to the wall in there and you'd chip the wall. It was so much different than it is now. Yeah, I think that we've really oversawful. gold what it means to be middle class, I think, in the new West. Like, if you go, even if you, let's just use like a geographic example, like the Western world

where we feel culturally similar, most similar to people like the UK as an example, there was this viral video of a guy on TikTok who came to Canada and he was just driving around neighborhoods and laughing and just being blown away at how big the houses were. You know, and you go, you watch, there was a show on Netflix. It was about like the kid who stabs somebody at school or something like that. But I just remember looking at like the neighborhoods. The size of the homes. Yeah.

and just seeing the houses and saying, this is so much structurally different than Canada and the US and Australia. And so I think the new world really, these countries were founded on the idea that people would come here and get free land or some sort of like improvement in life, right? So I think that we maybe just hitched ourselves too much to that wagon and kept saying, you move to America or Canada and you get three X the house. And eventually it kind of just spirals out of control because you build an entire economy and credit system around it.

And you have problem number one is the houses are, we're seeing houseflation. And problem number two is the system that's being built around it encourages too much risk exposure, too much net worth exposure to the primary residence, and this creates problems. I agree with all of that. And just going back to what we're talking about with the house is one of the things I remember in our house in our basement, which was half finished, we had a dartboard and we were constantly missing the board. There was dark holes, all of the walls.

Not doing that nowadays. People care so much about appearance and their house being perfect. I put out a video a couple years ago saying that a lot of the best memories I have from my friends' homes, my own home, was in unfinished basements, where the kids could go just down and do whatever they wanted to, play hockey, shoot, puck. I don't know how we got into these finished basements. I still prefer unfinished basements. Yeah. No, I'm sitting in a partially finished basement as we speak, right? So I agree.

And that's even as a 90s kid. Some of the best times in my life, I still, you saying that is just running the reel of all of the craziest things that were happening in that regard. And I think it's especially ironic what you mentioned about people really wanting to do this as keeping up appearances is because the house has very much become a status symbol. And but it's especially ironic because we're more disconnected than we ever have been. Like we don't really host dinner parties. We don't have our friends over that much anymore, right? We're all, we interact with each other on the internet. And so who am I really showing this to?

People on Instagram when I take a picture of my kid and they see my nice kitchen in the background. So it is weird. It's really weird. By the way, the data all backs you up. So nobody should come in and argue about that. Data says that people are hosting way less than they used to. Way less. I look at my parents.

They had bridge nights once a weekend. People will be over at the house, playing bridge, coming over. Dropovers are very common. Nobody ever drops over now. Thank heavens. I hate drop over. So do not drop over here. But all of those points you're making are good.

Okay, before we move back to some of the controversial stuff we got into last time, what surprises have we had in the last year? You've been very accurate in the calls you made 10 months ago and in the videos you put out. But is anything in the landscape surprise? you caught you off guard? I think the trade war escalating to where it is has really surprised me. And I think that the, it's still ongoing. But I think the fact that we haven't really, I didn't think that Trump was going to

actually meaningfully try and blow up Kuzma. I thought that it was not, didn't strategically make sense. But they do seem really committed to the idea of mercantilism and that they can onshore a lot of this stuff and that they want to be really self-sufficient. And I think, I don't know if you've heard, I heard Besson's interview on the All In podcast, but he, assuming that he's kind of the primary economic advisor to Trump, he really does believe in it as a revenue stream and that other countries should be paying for the ability to sell their goods in the U.S. market.

The richest market, yeah. It's not an unreasonable logic to arrive from. I think that there's two kind of pieces, right? So there's that piece. Like access to market makes sense to me from a terrorist perspective. The idea of onshoreing, manufacturing, and a bit of a mercantilist approach to economics doesn't seem that brilliant to me. Like that part, that's where I think their policy falls off.

So that, and then I think there's no way I possibly could have predicted the war in the Middle East escalating to where it is and being such a mess. But once it arrived, and as soon as they started, I said, this is not going away anytime soon. This is going to be, this will be a decade at this point. And oil prices are going to be violently impacted by it. And the U.S. and China have been pretty good at suppressing that through strategic petroleum reserves, both of them are depleted, and now they don't do that forever.

Yeah, so now they have to go and buy and now oil prices are moving up. So that creating cost-push inflation through and now governments or central banks having to cool the market on the monetary policy side so as to not exacerbate the inflation from both tariffs and oil prices is not something I expected to really be as big of a theme as it. I thought we would be dealing with real economic problems. We'd be talking about absent these things, I think we would. we would be talking about disinflation and how do we resurrect the economy. But now we're in an inflationary fearful environment. I think that this just probably expedites the path towards what I would expect to be a recession.

You probably get cost of inflation, monetary driven, credit contraction. You get demand destruction as a result. AI CAPEX grinds to a halt because those guys are pegged to the borrowing costs. And I don't know how long it takes, but probably six months to a year, we're going to be more concerned about stimulus than slowing the market down. But I didn't expect that one to happen the way that played out. That would probably be those two factors be the biggest surprise for me. You know, it's interesting going back to your point about Bessent, and you listen to President Trump talking again about how foreign countries,

in essence, should be paying for access to the very wealthy U.S. market. But of course, it's the U.S. consumer that really bears the brunt of the tariff costs. And so all of that is very difficult to kind of think through. But it'll be interesting to see how it all plays out. I mean, macroeconomics has so many moving parts. It's so dynamic that making predictions going forward is extremely difficult. I mean, that's one of the reasons I've advocated just buy your ETFs and focus very, very long term and put up with the volatility because forecasting is so, so hard. Yeah, no, absolutely.

I think that it's funny the way that you mentioned it, it really is just a branding player, right? All you're doing is adding a consumption tax like we have HST or whatever. And I would say the one advantage to a consumption tax versus an income tax is if people save their money and they don't spend it on stuff, then they aren't as subject to the tax. And so that's one way to encourage private savings rather than a consumption-based economy. No politician deep down really wants private savings. They tend to all want spend, spend, spend because that increases GDP and booms the economy, etc. Okay, let's go back to our big hotspot last time. We talked about the boomers and the boomers staying in their homes longer than so many experts

that anticipated. How do you think all this plays out? Obviously, the boomers cover a wide variety of ages and different circumstances. They're not going to all want to sell their homes. within a two and three and four year period. But do you think there's some point down the road, 10, 15 years, where there's enough supply coming on from the boomers as they either move down or move to assisted living, that it can be challenging to find enough buyers, especially at the price point they'll be

expecting to be able to liquidate it? Yeah, I feel like you pretty much answered the question with the question, but I do think that if we were to examine sort of what is, what does that look like long term? It really does depend on Canada's population growth, I think. wealth is a factor, or like income is a factor, but as we've seen, Canadians and much of the Western world will solve for income and wealth issues with what we call DIY density. So for the first time since we started recording the data and we talked about a number of people per household earlier in the episode, for the first time, that number is actually climbing in both

Canada and the U.S. So we've maybe bottomed out on how few people are going to live in a Canadian house. And a lot of this is we're seeing immigration in both countries from places in the world that have more people per house. And, you know, that's not just talking about like the Indian subcontinent, but Europe, everywhere else in the world that's further along in their housing cycle. Yeah. Has has more people in their homes. So I think that we start progressing in that direction.

And that is what creates the bid for these larger homes that really nobody, you know, your average, your replacement buyer like the next family on deck. One, their cohort fertility rates are much lower than the baby boomer cohort. Me and my friends are having two kids, whereas the boomer. cohort on average was having three. And so I don't need a five bedroom house or a four bedroom house. I maybe just need a three bedroom. So there's a lower demand generally there. If population grows substantially enough, then I think that it would smooth that out. And we wouldn't maybe necessarily be at risk of a long term oversupply. People would combine households. What we're seeing

a lot now is intergenerational living, which is actually not only an economic decision, but also a qualitative decision. People wanting to spend more time with their family, have help raising their kids. All the research says people are happier who do that. There is a lot of research that says people are happier. I wouldn't want to do it. But a lot of people say it's very effective in terms of happiness, which is what matters. Yeah. Well, I guess you have to force some inner peace to live with your parents. At least I would. You know, I'd have to be a very meditative state. No offense, mom and dad. Well, my dad lived with me for two months and I'll have him listen to this podcast. He won't be back again. Yeah. Yeah. That door's closed. And that's his choice.

No, I know. It's not. It's why. No, I think that's all. What about immigration right now? Obviously, who we've seen some huge policy changes. The numbers have gone from one extreme, almost to another. Well, most democracies have really evolved into populism. And I think that the liberal government realized when Pierre Pollyev was putting a lot of pressure on them for this. And I think partisan politics are very stupid just to say that. I'll put that right out there. But so I think that I'll give Pierre credit because I think that he pretty much, he forced them to do very necessary things,

even without being the leader of the country. probably one of the most effective opposition leaders mechanically in Canada's history in that regard. And I'll applaud the liberal side for actually starting to make these necessary changes, probably a little bit too late. So they basically said we're going to drop the temporary resident population from 7% of total to 5% of total. There's two mechanics by which they're doing that. One is people are actually just leaving. They're asked to leave it.

Two is they can apply because they have enough work experience in Canada now to become a permanent resident. So greater that, I think it was like 60% of permanent residence applications, processed in the last year were actually people who were already living in Canada. So your actual permanent resident immigration number is actually massively shrunk as well. So our population is net decreasing for the first time in Canada's history, like minus 70. And you also have emigration. So people, Canadians leaving or permanent residents leaving is hitting record highs. People are fed up with Canada. They want to move to somewhere else, whatever it is. So Canada's population, which has been the driver of our economic growth and our housing market growth, that variable is gone.

And it's gone until at least 2028 is if you look at the most recent spring economic update from the Canadian government, they have the curve kind of moving and very ambiguous graphs, but it looks like the curve sort of moving upwards. And they're expecting to hit that 5% target by 2028. So 2028 is probably one we'll expect to see the population start actually growing again. This year will probably post a bigger loss than last year on a year over year basis. next year might be flat and then the year after I would expect that you'll start seeing growth. And they had to do it because people were very upset and I think they saw what was happening in Europe

as a result of this and said, let's just avoid going that far. And many people would argue maybe they had already, but I don't think it doesn't seem like we think, you know, the civil unrest as a result of this was as severe as what was happening in Europe. Okay. All of you who are fired up about any of the political comments there from Daniel Foch, please direct all responses to him underneath. He will give to you, trust me. in the comments. He'll get back to it. He does. He gets back. He's fired up. Okay, we're going to wrap up here. I want to give you a chance to talk a little bit about Valerie, not because I'm trying to help out

your business. It doesn't need it, but because I find it interesting. You're an entrepreneur who has said, look, an AI is here to stay. It's going to be a huge part of our lives. It brings a lot to the table in terms of productivity gains. How can I, an expert in my field, take what it brings to the table, especially through agentic AI, wrap it around the duties, the responsibilities, the activities of a standard real estate agent to add value. Talk a bit more about it. So I think that most businesses, and I'll talk a little bit about meta muse here because I think that it's, it has unlocked that new frontier. I think I started talking about it and I trail dog, but most small businesses and realtors are really just small businesses or they should be operating

like that. Most small businesses use like Instagram or some sort of social media platform as what we'll called their digital storefront. Like nobody goes to their website. They get their clients from Instagram. And meta has now created a personal AI assistant that plugs into your Instagram. And so all of those problems that we're talking about with open claw, people afraid of connecting it to their Gmail and blah, blah, blah, blah. That's gone, right?

Because these people already trusted Mark Zuckerberg with all of their private DMs. And all these platforms already knew more about me than anyone in my life knows about me. Yeah. So now we've, if anybody who signs up, for that. They've just crossed the, they're in a post-privacy world, let's call it. And that is a big step. They can use agentic AI, so an AI that has hands or has a computer to go around and do things for you. So buy you stuff, follow up with your emails. A lot of small businesses are very simple operations. And McKinsey did an exceptional study on this industry by industry, what

percentage of work can be done by an AI agent. Real estate's at about 41%. There's still a physical element of the business, right? You have to go out and see properties and talk to people and AI cannot do that. And even a robot camera version or you put my brain in a Tesla Optimus robot isn't going to deliver the same experience. But so 41% of my business can be done by an AI agent now. Why am I still doing that? 41%. And that's the question that we're trying to answer and solve. So where five years ago, a realtor may have hired a human assistant, a license, another licensed realtor added somebody to their team or somebody domestically or even if they're really trying to protect costs, a virtual assistant.

And they have to commit, make a large financial commitment to be able to do that. And we know realtors aren't exceptionally good at managing their money. So many never crossed that line because they couldn't take the financial risk. Now they can do that on a variable cost basis. So every task that gets done, you pay the AI money to do it. And at a far lower cost. So that's what we are trying to solve for. And the biggest one that we get is like, oh, I heard AI has an error rate of 30%.

And I said, have you ever hired like entry level labor before? Because 30% is an exceptionally good error rate, honestly. So that's one of the interesting components. It has that high an error rate. And you're right, the human error rate is very high too. But does that mean you're still reviewing it? So it's doing a lot of the work for you. Let's say filling out forms, but you're reviewing it to make sure it's on the right track.

Yeah, I think in the same. same way, like I would say it's a comparable level of intelligence to an administrator that you would bring in the same way that you should be systematizing your business, building standard operating procedures, defining a definition of done. And then when it, when something comes back wrong, like there does have to be a human in the loop in most cases. And we, you know, but on the technology that we build for our Valerie agents and then we sell outside of our business as a SaaS product called homies, we, by default, everything has to, everything that's going to go and touch another person outside of your business has to be reviewed by you. You can ask it to eventually once you

trust it, to not do that. But if I heard a brand new admin, I wouldn't be giving them permission to send emails immediately or sending offers out to my clients immediately. I would want to review that until we, we got to the point where I was confident enough with its output and confident enough with the system that we had built, the list of procedures that got us to that output, that the results would come back perfectly. So you're taking your software and you're using it as a recruitment tool, the reason that people go to work for Valeries because they have this cost savings through the tools you've developed, but you're also licensing it to other real estate companies, real estate

agents because it can save them money. Is that essentially the model? We built the technology originally for just our realtors and in our business. Like we always wanted to get into the SaaS space, higher multiple than the bro. I don't think that was the primary driver, but we kept bumping into the same objection on recruiting, which was I want all of your tech and I love the tech, but I don't want I've been here forever. Yeah.

Yeah. So it's like, okay, would you buy it at the same price as our desk fees? And if the answer is yes, then okay, we obviously have to go and try and capture that market. So we do sell our technology to agents outside of our brokerage now as well. I love having you on the show. Honestly, you were one of our best guests. You really have been and a lot of fun. And we had great interaction last time and everybody loves listening to you.

You're extremely well-spoken, very bright guy. I'm looking forward to following your career, seeing how Valerie does. Thank you. I really appreciate it. Yeah, no, you're a sharp guy for sure. So let's stay in touch, but thanks again for coming on. My pleasure. Thank you for having me.