Canada's Expecting More Rate Cuts Than Any Other Advanced Economy

[00:00:00] Welcome to the Canadian Real Estate Investor, where hosts Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Welcome. Oh, we're not doing the welcomes. Don't you start with a list? Well we can still welcome everybody. Welcome.

[00:00:21] Welcome back. Welcome to the list show. Welcome back to the Canadian Real Estate Investor podcast, where today we have some pretty important things to talk about. Justin Trudeau says that housing needs to retain its value.

[00:00:39] Canada is expected to see more rate cuts than any other advanced economy and CMHC is concerned about Canada's crisis level mortgage bond buying spree. But before we begin, a few other announcements. We are doing a giveaway with Sherwin Williams, the biggest and best paint company in the

[00:01:01] world for 15 gallons of paint, enough to paint over 200,000 light switches and electrical sockets even though we do not recommend painting. No, don't do that. Don't be that landlord. That's a joke. We use that as a joke because it's good and it's funny that we're partnered with

[00:01:16] a paint company and they're awesome. They sponsor our meat products. But you can do other things like paint houses and rooms and garages and basement suites and ADUs and all that good stuff. So whatever kind of paint you want, if you win and someone will win.

[00:01:31] If you win, let us know what kind of paint you want and Sherwin Williams will accommodate. So sign up for that. Join the meetup group to do so over 2500 members already. 22 cities across the country. This has just been so cool to see this thing grow.

[00:01:45] Sherwin Williams also has a promo on paint right now. So that would be even more discounted. You probably get even more gallons if you need to do that. What else we got, Dan, before we get into the show? Yeah, meetups.

[00:01:56] Make sure you go to a meetup which you mentioned. I'm going to be launching Durham on June 11th. You're going to be launching Hamilton. The hammer. Yeah. So and then we're actually both going to be out in, can I say it?

[00:02:08] We're both going to be out in Calgary for the Stampede. We're going to do a Stampede special edition of the meetup. Sherwin's going to be putting up some paint for a mural. Yeah. So shout out to, yeah, I mean, it definitely going to be sweet.

[00:02:19] I guess we're going to like all paint a mural together. They have the whole rooftop there. Like the meetups in Calgary have grown so big that they have the whole rooftop of this space. Anyways. Dan's going to be on a mechanical bull. I'm going to be getting painted.

[00:02:33] Yeah. Nick's going to be playing Yellowstone and try and buy some ranches. Anyway, Sherwin also has a 40% off sale going on right now. Sign up for our next webinar as well, our next free webinar. So we're running monthly free webinars in the free version of realist.ca.

[00:02:52] Go to realist.ca. Sign up for our next webinar. We're going to do a full breakdown and presentation on distress deals. I get asked about this all the time, and I have three power of sale listings coming up personally.

[00:03:03] And so we're going to talk about how to buy power sales, how to find them, how to execute on them, how to negotiate with the sellers on power of sales because they're unique sellers. They're lenders. They're not just sellers.

[00:03:13] So the link for that is always at the top of our show notes. And Nick, before we jump in here, hit me with a review before we get started. This is a great review. I would love to.

[00:03:24] It's just so much pleasure reading some of these reviews that seem to get longer and funnier and more complimentary. And we'll take it. So this one's five stars from podcast property, how Dan and Nick made real estate fun.

[00:03:41] The review reads, as a long time listener to the Canadian investor podcast, I've followed Dan and Nick since their very first episode. As a senior manager in land development and real estate, I was instantly hooked.

[00:03:54] And Nick are adept at covering a wide range of current and relevant topics for Canadians, all while making the content entertaining. Real estate can be complex, but these two excel at breaking things down into layman's terms. What I appreciate most is the show's broad appeal.

[00:04:14] It's accessible to everyone, regardless of their background. For instance, my wife, who typically isn't interested in real estate or finance, once mentioned a fascinating guy she follows on Instagram. Well, it turned out to be none other than Dan.

[00:04:30] Dan and Nick are genuine and down to earth, sincerely aiming to build a community of real estate investors across the country. Dan has even personally connected me with several people within his network, which has immensely benefited me.

[00:04:43] I never expected that level of engagement from a podcast inspired by these guys. I left my corporate job to start my own land development and management company. Congratulations. That is awesome. It was the push I needed and I've never been happier.

[00:04:56] Knowledge is power and Dan and Nick have democratized expertise that was once only accessible to a select few. Shout out to their mentors, Brayden and Simone as well. Keep up the great work. Love when the pod fathers get a shout out and man, what a great review.

[00:05:13] That was a good review. Love that we're inspiring people to go out and do their own thing. I've said this before. I'll say it again. I think that everyone, my girlfriend who I think still listens to the show, always churps me for this.

[00:05:25] But I think everyone would be better off if they took a risk and started their own business at some point in their life. And that doesn't mean leave your high paying corporate job and risk at all, but that means start a side hustle, you know,

[00:05:36] start to execute on the idea you've always had in the back of your head. Or you are such an idealist. At the very- I'm like sitting here like, no. I know Dan. You can't see this right now, but Dan's like, that's a bad idea.

[00:05:46] But what I'm getting at and listen, the chances of those of everyone starting a business and it being successful are zero. They are not going to be successful, but I think starting something from scratch teaches you so much. Failing teaches you a lot too.

[00:06:01] And that was my next point. It's gonna, you will fail. Yeah. So anyways, there's the announcements. There's the review. Speaking of failure, let's segue to an idea that is doomed to fail. Oh, you're mean. Prime Minister Justin Trudeau says his government aims to make housing more

[00:06:18] affordable for younger Canadians without bringing down home prices for existing homeowners. Oxymoron? Well, that's like, that's the joke, right? Like it's just, you can't do both. I don't think. Unless you build a ton of houses.

[00:06:30] No, you still can't even do it if you build a ton of houses. I don't think so. Yeah. So this comes from an article in the CBC. Nope, Globe and Mail. Sorry, my mistake. Trudeau says housing needs to retain its value.

[00:06:40] It had a different headline when it was first posted, but that one got cut down. It was a little too ominous. It says cutting shelter costs while ensuring that homeowners property values remain high could be viewed as contradictory. Okay, cool.

[00:06:51] I'm not the only one who said it, but Mr. Trudeau was adamant that property owners would not lose out. Housing needs to retain its value. Mr. Trudeau told the Globe and Mail City Space podcast. It's a huge part of people's potential for retirement and future nest egg.

[00:07:08] Many residents have been priced out of Canada's housing market with typical home values topping 735,000 across the country and exceeding 1 million in Toronto. The cost of rent has also been climbing, increasing the frustration among younger voters that the Trudeau government is trying to appease with these comments.

[00:07:26] So yeah, wow. Yeah. I guess I did come out swinging there, but the reality is like, I don't, I just think it's, you know, you can't do both of these things. It's tough. You're talking out of both sides of your mouth, which I've never seen anyone actually successfully.

[00:07:41] Isn't that what you do when you're talking like, it's just one mouth. One mouth. But I mean, like if there's two different things coming out of each side, that's, you know, I don't know how to do that, but maybe they teach you that in politician school.

[00:07:52] Uh, the question here is Dan is housing as a retirement plan. Doesn't really work if they want to fix the problems that we've, that we found ourselves in. So again, going back to, you know, the prime minister's quotes, housing needs to retain its value.

[00:08:09] It's a huge part of people's potential for retirement and future, future nest egg. I think we all knew that right? Like there's a lot of people that looked at their primary residence, either whether you're selling and downsizing, um, using some kind of financial product,

[00:08:24] like a reverse mortgage for instance, or something like that. That's what a lot of people were planning on living on or planning on selling at least that property and downsizing into something a bit smaller. So, you know, I don't think we've ever seen a politician publicly

[00:08:38] proclaim their support for the generational wealth and housing disparity created by their policies in the middle of a housing crisis. However, when you have a by election to, when, when you have by election to win in a market population of wealthy homeowners, I suppose nothing's off the table.

[00:08:57] And that's that Toronto. So there's a by-election taking place in Toronto. Um, one of the Toronto ones, I can't remember saying something. Yeah. I mean, it's, I don't know. Like they Complicate things. Well, it's hard. Like, I mean, it is kind of that they'll oscillate back and forth

[00:09:09] between like which group they're pandering to, right? Like one, it's just funny. So Students or wealthy Toronto people, young people that are trying to get housing or the wealth people that need the housing to stay elevated. So again, you, you'll certainly never find a politician who will

[00:09:24] admit that in order for housing to be more affordable house prices need to be lower. It's true. And like none of the three, What a fuck. Yeah. None of the three political leaders are gonna, gonna make that comment. Right.

[00:09:36] It's funny because like you end up with these elections, like with housing being the leading issue, it is really difficult cause you end up with these elections that you're really just going to end up with more of the same. Like, you know what I mean? Unfortunately. Yep.

[00:09:49] With all that being said, there's a pretty clear reason that everyone is very hesitant to say anything or really do anything about that. And that's because around 66% of Canadians own their homes. So the reality is that homeowners, homeowners are the largest group

[00:10:10] of voters in Canada and you as a politician that's trying to win an election, probably want to keep them happy. Well, it's also that, yeah, like they're the largest identifiable group of people. Yeah. So it's like, yeah.

[00:10:22] And it's not that hard to make policy that supports them as we've seen for the past several decades. And we just did, we just did an episode on the MIRBS. I don't know if it's coming out before or after this one, but it doesn't matter.

[00:10:31] So Canada's home ownership rate has been like 65 to 70% range for decades, but it has been on a consistent downtrend since 2019 as the next generation of homeowners, which is kind of our generation and gen Z. So millennials and gen Z's are finding it harder and harder

[00:10:46] to purchase their first property. And you, you know, as somebody who's like just looking at politics and it's funny, like, you know, you can't come out swinging and we could be hard on the prime minister and it's easy to do that.

[00:10:57] Like in, in the current political sphere, because like you can see that support for the current administration is very small. So like, oh, talking about identifying groups of, you know, it's like, Oh, well data would tell me that 80% I can, we're not the only one. Yeah.

[00:11:14] You can, you can be mean and 80% of the population will agree with you right now or something. Right? So I think that the, you would expect that this would become an important policy issue for them, especially for a group that the

[00:11:27] last time that young people showed up to vote in a meaningful way was to vote Trudeau in, but, but this is not the case. Right? And so the question is why. Well, the answer is simple, Dan, as you just said, young people haven't really showed up to vote.

[00:11:42] It would stand to reason that the perspective of many politicians that young people haven't been a major deciding factor in some past elections, not just the one or two past ones, but in the history of Canada and the history of elections, it's harder to get young people

[00:11:58] to come out and vote. And what they can do is rely on a pandering to older generations with more reliable voting patterns. So this is according to the library of parliament, youth voter turnout in Canada, and I quote, uh, the decline in youth voter turnout in

[00:12:17] Canada, federal elections was first observed following the 1984 federal general election. Since then, youth voter turnout remains lower than the turnout for all other age groups, despite intermittent increases in recent years. And so as a result of this, it's been, I guess, the political

[00:12:39] expedient thing to do to kind of sacrifice millennial dreams of homeownership on the altar of this stable retirement for, for boomers. So to reiterate, what was said is that housing needs to retain its value.

[00:12:52] The challenge is that, and we're going to get to this later when we talk about rate cuts, because I think that these are talking about rate cuts. Yeah. Yeah. But these two things go hand in hand.

[00:13:00] Let's assume that they're able to keep value retained or it stays where it is. The only other way for value to get back down to its pre COVID levels of affordability is for rates to go come down 350 basis points or incomes to go up like 50%.

[00:13:14] And so those are both also economically challenging things to take place. But yeah, so if you, you know, if you go and look at Canada's population pyramid, it's, it's kind of funny, right? So they always called it a population pyramid because they thought it would

[00:13:31] always be shaped like a pyramid, but ours really looks more like an hourglass. Right. It's there's two identifiable groups, 25% of your population is baby boomers. So there's a big bump at the top of the population pyramid. And then 21.5% of the population is millennials.

[00:13:45] And then, you know, your gen Z's are kind of smaller, smaller than that. And then there's the gen X is in between boomers and millennials that are, oh, you know, a lot of people, but not, not these two huge humps.

[00:13:56] You know, you hear a lot about pyramid schemes, but you never hear about hourglass schemes, that new one that we just came up with. Now in this model that you described in the largest demographic in Canada depends on the second largest demographic in Canada to keep

[00:14:11] their asset values inflated. Well, here is the problem with that. We can't afford to. You know, this has been brought up a few times, Dan, you've brought this up in some of your, in some of your posts.

[00:14:24] But let's just say if you were a government trying to retain value of housing, you would probably do a few things. First would be increase the quantity of housing consumers. Okay. Immigration. The second would be increased the buying power of those consumers.

[00:14:43] And the third would be increased the output value of property. Now, from our perspective, the government has already done this by one, increasing the population by three to 4% annually, which is huge growth. Right? Don't forget Alberta is the fastest growing place in the world right now.

[00:15:00] Faster than countries faster than emerging nations. The second thing that you would do if you were the government is increase amortizations for first time home buyers. Boom. Seeing that as well. And the third thing is increase the unit density by up zoning residential neighborhoods.

[00:15:17] And we have seen that in tons of municipalities across the country. Yeah. And I guess quickly to not detract too much from the idea of the economics of inheritance, creating an inheritance economy, there's a, there's this marginal benefit to be observed in the strategy that they're mentioning,

[00:15:35] which is that a financially stable retiring generation means a lower direct burden on the younger generation. Oh, so they're doing it for us. I mean, there's an indirect burden, right? Which is that, you know, that, that they're, they're socializing that

[00:15:49] cost on the younger generations through asset values as a consequence of that, some sort of liquidity mechanism needs to exist for the equity in those properties that boomers have possessing all of this wealth to get. Into the hands of the next generation.

[00:16:08] And so they have three options, right? Like view. This is funny. The list is funny, right? You can sell the house. You can refinance the house or you can pass away, right? I mean, really like those are, those are the three outcomes where we're

[00:16:20] looking at right now with, um, with the baby boomers and so if they, I don't think they've evaluated what each of those looks like, right? So, you know, if we're going to commit ourselves to becoming an inheritance economy, then we're heading more in the direction of

[00:16:33] places like France, Sweden, Austria, et cetera. Um, and you know, an inheritance economy would be a system where significant portion of wealth and assets is transferred from one generation to another through inheritance, which you're going to talk about here, Nick.

[00:16:46] So maybe we'll just touch on Canadian housing as a wealth transfer mechanism, because there's this idea called the great wealth transfer, um, which you can look about, look up on Wikipedia, but $84 trillion are going to change hands between the silent generation of

[00:17:00] baby boomers into the hands of millennials and jet Xs, not gen Zs, gen Xs in the next, uh, between now and 2045. Um, so talk to me a little bit about how housing in Canada is going to play that

[00:17:11] role rather than in the U S where it's like stocks and bonds or whatever. Gold bars and cool stuff like that. We just lambos. Yeah. Duplexes up here. So it really starts with baby boomers, Dan now baby boomers were again,

[00:17:22] born between 1946 and 1964, and they've had the advantage of purchasing homes during a period when real estate prices were relatively lower compared to today. Over the decades, these properties have appreciated significantly in value, contributing to a substantial accumulation of wealth and real estate assets.

[00:17:43] I'm sure we all have our own personal anecdote with either our parents or parents' friends, or someone in our family who bought a house for, you know, all those stupid jokes, you know, three apples and two almonds and five grand back in the day.

[00:17:56] And, and now, you know, they just sold it for a million bucks. Well, that doesn't happen anymore. And as baby boomers age or pass away, many are planning to transfer their wealth to their children and their grandchildren. Now this transfer includes real estate assets, primarily the primary

[00:18:15] residence, which often constitute a significant portion of these boomers wealth. The bigger question is the average boomer is going to have to choose to dispose of their oversized asset prior to their death through a sale. So how does that play out? Yeah.

[00:18:32] So before we dive into what my thoughts are on what that would look like, because I think that this presents a really big headwind or an opportunity for real estate investors where, you know, we know that all of these houses are massive.

[00:18:48] And I always talk about like all of these McMansions that are going to come on the market in the next 10, 15 years as boomers start to downsize. They're all great multiplex candidates and policies moving in that direction. Right?

[00:19:00] So the other piece of this is that it supercharges disparity, which was observed by the Washington Post, which I, and this part was especially interesting to me because, you know, you would think that the, this administration, like the liberal administration of all administrations

[00:19:20] would be the most attentive to this. So the fact that they ignored the disparity piece fascinated me a little bit. So younger generations, particularly millennials and Gen Z may inherit these properties, but the transfer can alleviate some financial burdens

[00:19:32] like, you know, pay off student debt or they can't enter the housing market, but it can also perpetuate existing wealth inequality because you're basically like putting, you're using assets as like a time machine. Right? So the inheritance economy would lead to increased economic stratification

[00:19:49] where, you know, like when boomers were growing up, the world did have, like it was a lot less fair. Right? And the economic outcomes are a lot more disparate. And so when they were accumulating that wealth, you know, there

[00:20:04] was probably advantages and then those are being passed down from to a new generation and those advantages sustain. So the Washington Post put out this set of visuals that shows how inheritances tend to follow the money. It says share who have ever received an inheritance.

[00:20:22] And if you look by race, there's large disparities by education. There's large disparities between less than high school versus bachelor's and higher. And then by income percentile, like bottom half of the income percentile only 10% have received an inheritance.

[00:20:37] And then the top 1% is like over 40% have received an inheritance. Right? And so it exacerbates some of the existing inequalities. The next piece that I guess we'll get to is how it will impact the housing

[00:20:52] market, because all of these, based on what you're saying, it would create an influx of inherited properties that might influence supply and demand dynamics from my perspective in such that we would see a lot of supply come

[00:21:04] on the market from all of these baby boomers selling these houses. So tell me a little bit about that. Yeah. And that's really interesting. And before we do that, just when you were speaking there, Dan, it

[00:21:15] reminded me of a stat and a report that we covered a while back on the show. I think you and I both made some social media content on it as well. I believe it was stats can, and it said essentially, I'm going to

[00:21:28] paraphrase here, but you are more likely to own a home in Canada if your parents own a home. Right? So again, going back to guess what? Inheriting, whether it's gold bars and Lambos in the States or

[00:21:41] houses up here in Canada, it helps if your parents owned a home. Now, speaking of owning homes and boomers, Canada has a lot of empty boomer bedrooms for a place with a housing crisis. A report from Cansea entitled Understanding the Forces Driving

[00:22:01] the Shelter Affordability issues a linked path assessment of housing market dynamics in Ontario and the GTHA. So what the heck does that mean? Well, one in eight Ontarians are under housed, meaning they do not have enough bedrooms and it would take 2.5 years to just supply the missing

[00:22:21] bedrooms, but on the other hand, over a half of Ontarians and three quarters of those age 65 plus are actually over housed, AKA they have too many bedrooms. There are over 5 million spare bedrooms in Ontario alone, equivalent to 25 years worth of construction.

[00:22:43] In fact, there are over 400,000 homes in Ontario that have three or more empty bedrooms, that is nearly 1.3 million empty bedrooms in these large family sized homes or in Dan, as Dan dearly calls them, McMansions. So a lot of these McMansions or even let's say the smaller

[00:23:03] McMansions are sitting mostly empty. Yeah. And so this is where you kind of get to that catch 22, right? It's like, how do you realize all of that space that has not being utilized properly in the middle of a housing crisis?

[00:23:19] What I would recommend you don't do is mention it on Twitter where you will be called a communist by a bunch of all right. I've successfully, uh, you've managed to piss everyone. I have, I'm a radical centrist. When people go left and people go right, Dan goes middle.

[00:23:36] What a time to be alive. Yeah. So anyway, I'm not even going to get into that, but it's been very fascinating. So the challenge with the comments that the prime minister made from my perspective is that in order for the baby boomers to fund their retirement

[00:23:48] from in the way that he's mentioning, they need to have a liquidity event to realize the equity in their homes. They can do this in one of three ways. So they can sell the house, they can mortgage the house or they

[00:23:58] can die in the house as many claim they wish to do, right? Because they, they don't want to, they don't want to move. They don't want to downsize. And, um, this could create a sustained supply imbalance even

[00:24:09] against record population growth in the scenario, more and more above average value homes are added to today's more to the market's resale inventory. Right? So this would keep the market filled with inventory that we know can't be

[00:24:23] afforded by the primary pool of buyers in the market, which is first time home buyers who represent 50% of the buyers in the market at any given time, approximately according to the bank of Canada. Yeah. Really interesting stuff. Okay. So let's talk about exit liquidity.

[00:24:41] The challenge is that housing affordability is the worst it's ever been here in Canada. Now, according to the deep dive dot CA, fewer than 10% of Canadians can afford the average Canadian home at this very moment. That is a very disheartening stat.

[00:24:59] So from our perspective, this potential shift in supply and demand is one that is underestimated when evaluating the long-term impacts of Canada's broken population, not pyramid, but population hourglass, which is the biggest portion of our population depends on the second

[00:25:18] biggest portion of our population to keep their values propped up. The problem is millennials can't afford to do it, but can we keep trying to expand the millennial cohort in an effort to change that? And that seems to be what their objective is.

[00:25:34] Um, you know, to continue growing the, that, that young people, the bottom of the hourglass in, in Canada to prop it up, prop up the market. Right. So you have all these factors that we listed earlier. So you have the government up zoning, the federal government is really

[00:25:49] pushing for multiplexes. And actually this is a great segue because I'm just going to work as part of the news episode, we're going to go through a couple of random data points that have been posted by some people on Twitter.

[00:25:58] And the data point that I'm going to present is about this huge increase in housing demand from non-permanent residents. But also, um, the fourplex piece is something that I talked a lot about with Mike Moffat when we were at the OHBA, the Ontario Homebuilders Association.

[00:26:13] Stay tuned for that episode. Yeah. So we gathered, we must've done like hours and hours of content there. So we just have to push through all the audio interviews. So we're at the Ontario Homebuilders Association East, um, in Ottawa, drove

[00:26:24] all the way out and morning drove home at night, it was 2.45 AM. Back at midnight. And you know, I've always wanted to pick Mike Moffat's brain on this specific thing, what are baby boomers going to do with their house? Are we going to see those start getting multiplexed?

[00:26:36] And we talk a lot about it, but anyway, so, so the idea here is that there's multiple layers of supply or sorry, of policy that are trying to support these assets to make them, to make that the, to cushion the supply flood that I'm describing. Right.

[00:26:53] Which is if they start selling them, prices could come down if all these boomers start selling at the same time. Right. And like there's like, it is literally a timing thing. Like they're all, you know, 30, 40 years though, all of those houses will have changed hands. 100%. Yeah.

[00:27:07] I mean, there's, it's not an if it's a when. So, um, okay. So this quick tweet from Mike Moffat, this is really interesting. So he said, um, approximately 70% of Ontario's housing demand comes from people who arrived in the last 12 months or non-permanent residents who

[00:27:22] gained permanent residency in the last 12 months, but there are some pretty big differences in how this plays out at a community level. So give me one of those examples. Yeah. So in over half of Ontario's 49 census divisions, 90 plus percent

[00:27:37] of new housing demand is from new arrivals from other countries, provinces or other communities within the province of Ontario. One Canadian, Rainy River, or is that one census one? Sorry. One census division. I was like, that is a hell of a name. Wow.

[00:27:53] I need to meet Rainy River. Um, one census division, Rainy River has negative net housing demand. Well, 18 others will be negative if not for migration. Yeah. So from that, like it's kind of similar or comparable to what we're describing on a bedroom basis. Right.

[00:28:11] And again, don't mention this stuff on Twitter unless you have a full day to argue with people about communism, but the, you know, you're seeing areas where like, and you, you know, the U S they have this flyover country, right? Or the Midwest, right? Flyover states. Yeah. Yeah.

[00:28:29] Whereas like, it's like, we don't, there's no shortage of houses in the U S. It's just, they're all, there's shortage of houses in places where people want to live, right? Approximate to jobs, good weather, whatever. Right. BC is a great example of this, right?

[00:28:41] Like, you know, so many people want to move there. The climate's great mountains. Things are beautiful. Yeah. But I mean, again, if you look at Canada, right, second biggest country by landmass in the world and one in four Canadians essentially

[00:28:54] lives on the corridor between Cornwall and Windsor and then the other, you know, and then I think it's 75 or 80 plus percent live within a hundred, 150 kilometers of the U S border. So you're right. I mean, it's not, Hey, we need places to build.

[00:29:11] We've got endless places to build. It's just, do people want to live in these places? Yeah. So let's read a couple more of these from the, from the thread here. So in five census divisions, basically the GTA and Ottawa, so PEO York

[00:29:23] city of Toronto, Halton and Ottawa, immigration is responsible for over 40% of housing demand. This includes both new arrivals and non-permanent residents gaining permanent residency. And actually fascinating part, like when he says housing demand, this isn't just, this isn't people buying houses, by the way, this is people buying

[00:29:37] and renting because like when you're talking about international students, they're not always buying houses and then selling them when they finish university or college, right? And so this is really interesting because one of the folks that we've

[00:29:46] had on the show before, pattern, uh, Daniel Moss is working on a very interesting product in this regard. That's probably the best teaser I can get. I might even get in trouble for saying that, but, um, but, so stay tuned for that.

[00:29:57] Cause we're going to be talking a little bit about that, but as landlords and as investors in real estate, we want to be thinking about this as, okay, like this is my, this is my demand pool. These are the people that I'm going to be renting properties to.

[00:30:08] These are the people who are, who are the tenants. And so, and these are the, these are the markets as Mike Moffat is outlining here, uh, that are being impacted by these demographic trends. Um, give me the next one. Yeah.

[00:30:19] In about a third of Ontario census divisions, 90 plus percent of housing demand comes from people moving to these parts of the province from other parts of the province. So that is not even inter provincial migration. It is literally just moving around Ontario.

[00:30:40] So you're the moving around Ontario, moving around BC. And that is what's crazy in all this housing demand. Yeah. So I guess the final piece is considering non-permanent residents like international students in some census divisions, this can be a half of new housing demand.

[00:30:55] This includes parts of Northern Ontario, like Sue, Sue college is a good example of, um, or Sue St. Marie, right? Where there's a huge international student population. They, they, I think they had the record of increases for international student growth. 6,000%. Them or Conestoga I think was it?

[00:31:10] No, Conestoga was like 1900%. I thought it was like 3 or 4,000%. Anyway, we have that list somewhere. Yeah, it was Sue and it was, there was another one anyway. A lot of them did thousands of percent. They've been doing Grant Cardone seminar, 10Xing stuff.

[00:31:24] So anyway, um, the other ones are Toronto Peel and college towns in Southwestern Ontario, Windsor, Kitcher Waterloo, Sarnia, London, et cetera. So, I mean, easy to see and understand where the demographic trend is. And we know that a lot of investors in Canada love to pursue student

[00:31:39] rentals, especially for a couple of reasons, primarily you turn over tenants faster so you can reprice your units cause rents are climbing or were climbing so quickly. They're kind of tapered off now and falling in some places, especially Toronto, but if a student's only there for two years

[00:31:52] or four year program, then they leave. Then you can rerent the unit at whatever the market rent is. Whereas with any other type of suppliers subject to rent control. Yeah. 2.5% a year here in Ontario or 10% or 15%, whatever, you know,

[00:32:06] whenever those kids leave and you can turn over the units and spice them up a little bit. Yeah. Well, and as long as inflation, like as long as your costs as a landlord are going up more than what you can increase rent at inflation is literally taxing you.

[00:32:17] It's, it's stealing by pricing power away. So, I mean, it's not even really like the, you know, it's, it's not even like, oh, we got to squeeze these people for all their worth. That's just like, you, you also have costs. You're trying to run a business here. Exactly.

[00:32:30] This is an evil landlord behavior. Now, Dan, speaking of inflation, let's talk about the next piece here, which is really interesting because this is the inflation killer right now, but, uh, this might be an announcement that is very

[00:32:44] welcome to a lot of Canadians, a lot of our listeners, but it needs to be understood and I think you're a great guy to explain it. So what is this next piece? This is the rate cut piece that you've been waiting for to hear about. Yeah.

[00:32:57] So the, the bank of America, I guess they front loaded their calls a little bit, according to, um, Carl Shimoda from, um, the, uh, from Corpey, I think the chief economist at Corpey, but he presented a really good visual, which I shared on my Instagram and Twitter.

[00:33:16] I think I retweeted on Twitter, but, um, it shows how Canada is expected to ease more than any other advanced economy, which means that, you know, what, what are they expected to do? Um, in regards to rate cuts, right.

[00:33:27] And basically if I go through this list, it shows how the primarily the first on the list is Japan. So the bank of, uh, Japan is expected to actually put three heights hikes on the board over the next. Uh, what does it say?

[00:33:42] That doesn't really say, but this is just based on implied, uh, number of interest rate moves implied by, uh, in overnight index swap prices for the next three years. Sorry. As of June 4th, 2024, which is when we're recording this, which is

[00:33:55] the day before the bank of Canada, which I bet that they're going to hike. And I bet hold. And you bet hold. So we'll see who's right. Or sorry. I didn't say I said hike, didn't I? I meant to say cut. I mean, I, it would be funny.

[00:34:06] Yeah. Wow. Imagine they're just coming with it. Let's not. Um, but yeah. So I mean, looking at this, we've got Japan, China, Switzerland, Austria, Euro, United Kingdom, United States and Canada at the bottom. And Canada is the only one that hits every single possible rate cut.

[00:34:22] We are the bottom. And, uh, it looks like Switzerland is going to get very few cuts compared. They've already started cutting though, to be fair. So like they, right. So this is starting now and I think zero interest rate policy.

[00:34:35] Um, but yeah, so Japan's expected to see three hikes. China is expected to see one hike. Switzerland is expected to see one cut. Australia is expected to see two cuts, um, which I thought they were kind

[00:34:45] of comparable to us in like the bailout necessary from a housing crisis perspective and all of that Euro it says six cuts United Kingdom. Same thing. Six cuts, which is kind of in the Euro area. U S is higher than the Euro area expecting to see seven cuts.

[00:34:58] Is that does say number of interest rate moves implied in overnight index swap. And then finally Canada with eight cuts being priced in by the market. It's like they have no faith in us surviving this thing. And we're just like, I guess global credit markets, like literally are

[00:35:13] looking at Canada, like you guys are in trouble, which is scary. So anyway, I'm going to move on from that because of how scary it is, but that's, I mean, if you guys want your bull case of it, cause everybody seems

[00:35:24] to think that recessions and D and whatever's going to necessitate eight rate cuts is bullish. There's your bull. There's your bull fuel. Canada is going to see Canada is going to cut rates more than any other advanced economy on earth.

[00:35:36] When you compare to Japan, China, Switzerland, Australia, the whole Euro UK, U S and Canada. So congratulations guys. You did it. Um, give me the last one here. This, uh, this is a crazy headline from the mortgage professionals, uh, magazine. Yeah. So this is the last piece here.

[00:35:53] Canada's crisis level mortgage bond buying could raise debt costs that's according to CMHC. The government's increased mortgage bond buying spree could backfire. Canada's approach to stabilize in its mortgage market is drawing criticism for blurring the lines between normal market fluctuation and function and crisis mode intervention.

[00:36:17] So sounds like some people are confused. The plan, which includes direct funding of mortgage borrowing has experts warning of potentially negative consequences. Now, Dan, we've talked about this before, but give me some more detail

[00:36:30] in some context as to, uh, as to what this article is going on about. Yeah. So the, um, the CMP magazine that's Canadian mortgage professionals. Great. Uh, great. Is it? I don't know. It says MPA mag.

[00:36:41] I have to look up what this, uh, what this is, but, um, it says, um, in a 2022 report, Canada mortgage and housing corporation or CMHC said the government's plan to eliminate CMBs and fund loans directly would erode Canada's reputation for stable capital markets.

[00:36:56] And we talked about this a little bit on the show where, you know, and I think we, we kind of misinterpreted what was happening, but so let's just revisit this quickly. Can the government of Canada issued a 50% more mortgage bonds.

[00:37:07] So 20, $20 billion more of Canada mortgage bonds with the objective of almost all of that capital going towards a MLI select mortgages to build 30,000 more apartments. They call it unlocking more capital. Then they also committed to buying 50% of those Canada mortgage bonds.

[00:37:22] And in the process of doing that, what they're going to do is they're going to, it's actually gonna be a revenue generating tool for them. I think your buddy who listens to the show, he's a bond trader and he, he corrected Ryan.

[00:37:32] I feel like we gave him a shout out. Yeah. Well, he was actually messaging me about it this morning, asking what I, what I think we should, he, I asked him if he'd ever come on the show. He was a little hesitant.

[00:37:40] I know anybody who's working a rate desk is like, they got to be careful. Yeah. I'll get them on his with an alias or something maybe. Yeah. So, so basically the government of Canada can, can raise capital at the government of Canada bond yield rate.

[00:37:53] So let's say like 4%. And then they can issue capital through CMBs at four and a half percent and capture that 50 basis point difference. So they can, they can borrow money cheaper than they can lend it out. And so they make that little, it's a carry trade, right?

[00:38:05] It's they, they make that little 50 basis points spread on $60 billion. It's a lot of money. They're making a lot of money. The same idea is, you know, take stealing that one cent off of every credit card, right? Yeah.

[00:38:16] I mean, yeah, maybe a little less sinister, but it would be like, you know, it's like when you do a balance transfer, right? Or pay, pay, you know, like pay a credit card off with a line of credit and save the, save the difference in interest costs.

[00:38:26] So the CMHC report talks about this and they talk about how it could divert them investors elsewhere and drive up borrowing costs across all government services. And then they say direct funding for, or sorry. So that was when, in, when they were talking about them canceling it.

[00:38:41] And then they say direct funding for financial institutions by the government has traditionally been reserved for crisis action. And the application of this model during normal markets could distort the line between business as usual activity and crisis intervention. The agency set.

[00:38:54] I don't like all this talk about crisis. When we originally talked about this move, and I was so blown away that nobody, I had to like activate a couple of journalists on this, like to, to literally be like, why isn't it be talking about this taking place?

[00:39:08] Like when the government, like the global financial crisis was the last time we meaningfully saw a government step in to backstop, you know, and, and, and it could just be spread capture. And, you know, your friend could be right about the, like, that it could

[00:39:21] just be revenue generating, but it feel, I feel like, and they mentioned this in the article. So, so somebody did a FOIA request of freedom of information act request and got like the consultation document about this.

[00:39:31] And there was this thing that was redacted from the bottom of it. Have we talked about this? It says like, in terms of influence, like how this could influence the markets, presumably the housing market, cause that's what this credit interacts with and it's just redacted.

[00:39:46] And it's not redacted in black. It's redacted in white. So you like, it just says a heading and then it looks like there was nothing ever there. Which is like a little weird, but anyway, so yeah, it was,

[00:39:55] it was an interesting move, but anyway, so they obviously there's something in there that, you know, it would be sensitive to the objectives of the government too, to make that publicly available. So all of this to say that the agency CMHC had an issue with direct

[00:40:12] funding for financial institutions by the government. Yeah, I mean, and they explained that they currently operate the mortgage funds on a breakeven basis, passing along those cost of lenders rather than generating revenues, which is going to be changing. The government would be essentially competing with itself.

[00:40:29] CMHC said removing the slight premiums that CNB's offer over standard government bonds reduce the appeal of Canadian bonds to foreign investors. And we've seen a huge exodus of foreign capital and foreign investment already in the last couple of months here in Canada.

[00:40:45] Yeah, it is a Canadian mortgage professional magazine by the way. So you're right. But yeah, so they, so they go on and say shifting of direct government mortgage funding would also be unusual for a sovereign to do sovereign being a government outside of emergency situations.

[00:40:58] And so the question is, are we in an emergency situation? You know, an economic emergency situation and nobody's really like, cause you know, like, I mean, when it was taking place for like in, in the global financial crisis or when Iceland had a huge meltdown,

[00:41:11] it was like, nobody was, nobody was saying like, hey, everything is aft and we're, you know, like they were just like, it was kind of quiet about it. So that acknowledgement is fascinating. And RBC estimate found Canada's COVID support programs had already

[00:41:27] widened federal borrowing costs by 10 basis points in 2020 equating to 4 billion in extra interest given to the country's 4 trillion fixed income market. And so that alone, like it, it helps you understand that spread capture where it's like, okay, well, we're already borrowing a ton of money.

[00:41:43] Let's also be the people who issue and make that, that little bit of income because we need to, we need, like, we have so much interest that they're paying, right? So CMHC also pointed out that Canadian investors such as

[00:41:54] pension funds could see reduced investment returns as a result of this. Which I think we're, we're in the early days of seeing that already now, despite CMHC's warnings, Canada has already initiated that CMB buy-in program, which we've already talked about on the show,

[00:42:07] did a full episode on it. But while the government has not eliminated the mortgage bond program initially launched with a $30 billion limit, it actually expanded it to 40 billion with the latest budget proposing an annual increase to 60 billion. So CMHC's analysis of the program's potential impact on Canada,

[00:42:25] on the Canada housing market has been redacted. So there you have it folks. Trudeau says housing needs to retain its value. Canada is expected to see more rate cuts than any other advanced economy and CMHC is concerned that we may be in a crisis situation with our

[00:42:44] Canadian mortgage bonds and what's happening in that market. If you have any questions about anything we spoke about, please reach out to the show. If you are looking to purchase your first investment property or looking for help with your current portfolio, reach out as well.

[00:43:01] Dan is a real estate agent. I'm a mortgage agent and we love helping people build and better their portfolios. Anything else before we get out of here, Dan? No, I think that's it. Yeah. We'd love to help you out.

[00:43:15] We've got a big team, lots of listings coming on the market, lots of distressed deals, like a couple of power sales on multiplexes. So give us a shout if you want to see some of the deals we're working on. I'd love to work with you.

[00:43:26] The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice. Nick Hill is a mortgage agent with Premier Mortgage Centre and a partner in the G&H Mortgage Group. License number 10317, agent license M21004037.

[00:43:48] Daniel Foch is a real estate broker licensed with Rare Real Estate, a member of the Canadian Real Estate Association, the Toronto Real Estate Board and the Ontario Real Estate Association.