Hedge Funds Are Shorting Canadian Housing

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Welcome back to another episode of the Canadian Real Estate Investor podcast.

[00:00:17] Today we are going to be looking at real estate prices across Ontario specifically, which ones have had the biggest declines recently. Then we are going to be looking at a scary and interesting concept called the Great White Short, where hedge funds actually bet against the Canadian Housing Market.

[00:00:41] My name is Nick Hill and I'm Daniel Foch and let's start this off by looking at an article titled Real Estate Prices of dropped in many Ontario market since June. These communities are seeing the biggest declines.

[00:00:57] So the Real Estate firm Zucasa released a price analysis comparing benchmark price data from the Canadian Real Estate Association or CREA for 21 major markets across Canada to see where home prices have dropped the most since June when they hit their peak nationwide at $760,000.

[00:01:15] A number of cities across southern Ontario made that list, surprising. Getting not surprising whatsoever. Those cities include Greater Toronto, the GTA, the Greater Toronto area, the Niagara region, Hamilton, Burlington, London and Kitchener and Waterloo.

[00:01:35] The most dramatic drop nationwide was at 8.9% since June and I was seen in KW with prices down to $780,000 in November. And in the GTA prices dropped by 7.7% since June with the benchmark price down to 1,881,000. That's a 0.1% decrease from the year earlier.

[00:02:01] London, St. Thomas Hamilton and Burlington benchmark price is also fell more than 7% since June with Gualvetrailing behind at 6.6%. Meanwhile, prices in the Niagara region dropped by nearly 5% since June dipping down to $635,000.

[00:02:19] 7 cities across Ontario saw the most significant percentage drops in benchmark prices for single-family homes with Kitchener Waterloo seeing the largest price decline at 9.7% since June 2023 to $820,000. The same type of homes in Hamilton and Burlington also saw benchmark prices dip by 8.5% since June with November's market seeing 864,200.

[00:02:44] Single-family homes in the Greater Toronto area also dropped by 7.8% since June with benchmark prices hovering at 1.29 million to months ago. It's almost like there's a phenomenon that takes place where prices rise until June and then fall from June onward.

[00:03:02] Do you think that has anything to do with seasonality? It could be dependent on the seasons. We are in the thick of winter right now, Dan. January 17th, it's currently... I was going to Alberta, just made it to Ontario. You guys could have kept that...

[00:03:20] What are they called? Polar vortexes or a vortex? We're doing a bit of a field like a good snowboard trick. Because has this extra key in America? That was a great game. Yeah, the Polar vortex is not fun. It feels like minus 25.

[00:03:32] But I guess what, when it's that cold, Canadians tend to... I think do a little less overall. It's a little less getting out and about. Maybe driving for dollars or a little less, transacting because you don't really want to list your house or go out

[00:03:48] and buy a new house or an investment property. For the most part, obviously people are still doing their thing. But would you rather go buy your sell a house on a beautiful spring day or when it feels like minus 25 outside?

[00:03:59] And I think that's what's affected now before we finish off here. It's interesting to see that, you know, on Ontario and some of these markets where prices did skyrocket much more than 10%. We're really only seeing, you know, the most dramatic drop nationwide was at 8.9% seen in KW.

[00:04:20] So I think... And again, actually, so let me finish the article and then we can get back and share it. So the average price of a home across all property types in the Greater Toronto area peaked at 1.33 million.

[00:04:34] That was in February of 2022, and that was prior to the Bank of Canada's first interest rate hike. The average price is eventually dropped to 1.03 million, so basically $300,000 wiped out.

[00:04:49] But they did rebound in the spring and mid, you know, temporary declines that we saw in fixed mortgage rates back then. Now, our BC released a report that says it expects a quote unquote sluggish condition in Ontario's real estate market to persist.

[00:05:07] Well, into 2024, keeping buyers in the driver's seats in most markets. Okay, so... Again, this is a, this is my question here where price is going because if something rose, you know, 15, 20, 30% in its dropped 10%, or not even 10%.

[00:05:26] Is there still negative price discovery to be, to be felt in some of these markets then?

[00:05:32] You know, it's a great question. I think and we're going to go through a report that was put out by a questioning and wake field that is probably one of the most excellent reports I've read in granular detail about exactly what we talk about on the show, which is investing in smaller cap residential.

[00:05:47] And it shows sort of their estimated path for house prices to be gradually coming more in line with rents. And if I think about what is the fundamental price floor for a market in real estate?

[00:06:01] From my perspective, it really ends up landing at winter investors going to come back into the market and start buying houses to rent out.

[00:06:08] And we're still not there. We're still not out of point where it makes sense to buy a house even a duplex and a lot of markets. You still can't even cash flow.

[00:06:17] And so either rents need to go up, which they have been generally, but they are moving down for the past three months, or prices need to come down a little bit.

[00:06:28] Or something else needs to change, which is kind of what we're starting to see happen and it could be the government trying to do this with policy is

[00:06:36] They're increasing the density of houses. And so now all of a sudden you can maybe get three units or four units in a house and now your cash flow scenario becomes much better.

[00:06:45] But your yield to cost, which is outlined in this christman report, is really only like cash flow positive in like five markets in the UK.

[00:06:53] I see the smirk on your face because two of them we own property. But yes, but we'll save that report from the end of episode. I think that's kind of the other thing is like you're saying why these markets are not the others.

[00:07:06] So the big thing is like I think it was exclusively based on credit sensitivity. So you saw markets where the income in that area was detached from house prices more than other areas.

[00:07:18] You saw a run up like a lot of people leaving the GTA going to kitchen water, as an example, great city. Big benefit fishery of the urban access out of Toronto house prices ran up a ton in order for people to afford those that are to pile on more and more debt.

[00:07:31] And then as soon as interest rates go up, price has come down because that market depends on interest rates more than other markets. So it really to me is just a function of credit sensitivity.

[00:07:42] So going back to that which markets were more credit dependent and which markets had those poll factors during, you know, that great exit is during COVID right?

[00:07:52] Okay, I can go to Kitchener Waterloo. I can buy my beautiful little century home. It's a lot bigger and better than the condo I was living in. It's got the backyard to be able to afford it.

[00:08:02] To max out my variable rate mortgage and now that the tables have turned interest rates are higher prices are now coming down because we're not seeing people go there like we used to.

[00:08:15] Yeah, that's pretty much exactly it and I think you could see this same phenomenon taking place across the country, right? Yeah, Calgary you're still seeing in Calgary still ripping because more and more people are leaving Ontario and they're going.

[00:08:27] But you know, your got to point where Calgary is a little bit detached from most fundamentals to attach from rent to tax from income and there's a degree of vulnerability because it really just depends on the economy and credit.

[00:08:37] And so yeah, it's going to be interesting to see how this whole thing shakes out. Yeah, no and you know that we'll be here covering it so stay tuned. So okay, it's just based off of that discussion.

[00:08:51] It's pretty obvious that there's volatility in prices. You know, Dan here in the GTA we just saw the lowest transaction volume in like 23 24 years.

[00:09:03] And that's true of Canada as well. So in Canada the last year that we saw so few houses sold was in 2020 actually 28 to as an eight. Right, so we're we're 20 past years for for the GTA and we're almost 20 years for Canada as a country, right?

[00:09:23] So I mean ultra low transaction volumes that means people aren't buying they aren't selling they aren't moving inflation seems to be sticky now. We're reading this on the day inflation came out yesterday it's back up CPI was high, but it's so interesting, right?

[00:09:38] CPI was high and I'm usually the guy who will like, I try not to lie with statistics, right? There's this little call about how to lie with statistics but it's good of you.

[00:09:47] Yeah, if I'm going to use like the whole time I've been saying when everybody else was cheering on that CPI was coming down I said core is not coming down, but core has come down now and CPI is high.

[00:09:57] And so the bank of Canada we know looks a lot more at core inflation than any other type of inflation and core is less sticky than the other components.

[00:10:05] I posted an article that said that there was this talk at the Canada club from a couple of economists and Canadian club at the fair amount with a couple of economists and it was regarding the bank of Canada and a lot of people were saying rate hikes could still be on the table.

[00:10:20] That's where we're out with inflation. I don't necessarily see that taking place, I think that if you're trying to decide between a hike and a pause because you're in a sag flation you're just or sorry a hike and a cut you're probably just going to pause.

[00:10:32] Yeah, you know like the final middle ground then I'm going to keep beating it up again we haven't even experienced some of the ones that right like then I think it was the last episode or one of the one of the more recent ones were saying that it takes between 12 and 18 months for an interest rate to work its way through the economy so if we were to hike again,

[00:10:48] I mean that would I think be devastating but I know the article you're referencing and it's so funny to see that one thing happens and boom domino effect right now the headlines are you know cuts are off the table or hikes are back on the table and sentiment goes you know haywire again.

[00:11:08] I mean regardless of of coral or CPI inflation isn't doing what we want it to right now and and then to compile on that volatility in prices ultra low transaction volumes inflation sticking around immigration,

[00:11:24] which is you know the historic bull case for Canada may also be slowing and we just did another episode on on that to go back and check that one of those why or have we just seen the peak and partly yeah yeah the budget won't balance itself but immigration might

[00:11:40] and actually it's interesting because you know what I always look at like really easy way to just get an idea for what the hack is going on is

[00:11:49] just looking at the Canada five year bond deal then what the market thinks is going to take place because of these announcements and you see that the Canada five year government and to be it's funny because the markets wrong a lot but it is

[00:12:01] I just I look at it because it's like good reflection of consumer sentiment even if consumers are often wrong like most people should just put their money in an SNP index fund that's why people like real estate because they get it but look at that

[00:12:14] since I started speaking I've had the government of Canada five year bond deal up and I was about to say it's gone up from three point four it opened at three point four this morning

[00:12:22] and it was almost at three point five it touched three point five earlier and now it's back above three point five and now it's back at three point four nine but I'm not going to sit here and give you a play by play and what's happening with the bond but we just saw a significant jump right

[00:12:35] you know 10 basis point jump in in bond yields in the course of a half day but it's so funny because just based off of of that and by the way played by play would be we could see here on the

[00:12:45] screen and it's a good thing to say just go ahead easy content I don't know how many people would consistently tune in for that but if we had like a good like hockey commentary going like I just tell you what's

[00:12:55] going up and I think we'll stop that there but yeah I mean you know there's there's a lot of volatility right and it's so funny to see that the way that that kind of

[00:13:05] that trickle into the effect right it's like good news comes out bond and then you know consumer sentiment is hit bond yields change accordingly bad news comes out the media gets a hold of it consumer sentiment gets a hold of it

[00:13:19] bond yields change accordingly for sure which is which is funny anyways all of those things price volatility low transaction volume sticky inflation immigration slowing bond yields consumer sentiment that that's kind of all a great segue into

[00:13:36] this next article here now down when I started to put this episode together this was supposed to be a news episode where you know you guys are all familiar with that we take several news articles we

[00:13:46] look at the highlights we chat about them and then you know kind of distill them down and make them as relevant for you are amazing listeners as possible

[00:13:54] that did not happen here so if I found this next article brought something up to you and you're like oh yeah that reminds me of this anyways

[00:14:02] this this going from being a news article to now this is the only this is the second piece of news that we're gonna look but I went like full

[00:14:09] investigative journalist here get a lot of it when it goes to the executive journalist okay cool so article headlines as bad

[00:14:17] bed of it against Canadian housing market crushes hedge funds returns small hedge fund betting on housing market crisis had double digit losses last year so this hedge fund

[00:14:27] expected prices to fall and they built a position based on that and prices held up and bank shares rebounded it's interesting because I I do some consulting and conversations with some of these hedge funds that have some some long positions some short positions in the Canadian

[00:14:46] housing market and it's some of them like the only they're so big that the only mechanism they have to be able to short the Canadian housing market is the

[00:14:56] banks and so and banks are a tough one because Canadian banks are so freaking strong man thanks for tough anytime we we talk about banks in the mortgage space

[00:15:04] we you know I have this bad joth on my banks like casinos right the house always wins so trying to beat a bank is is the government and I've even like I've even capitulated where like one week was doing the read on rate hikes

[00:15:17] sorry rate cuts by the end of the year my god this is what your big six lenders are forecasting and they're the ones who give you the money so that's pretty much

[00:15:23] would drive the market like it's it's not really the rate like if if they feel that the that the lending and that is better they might reduce their spreads which means rates can come down right of the pricing gets better I mean anyway

[00:15:33] they're really in control their control house prices to like they they had the house everyone's like houses worth what somebody's willing to pay well what somebody's willing to pay is what banks will lend them and so and that's based on the

[00:15:45] appraisal because they can literally just be like by closing like oh we don't actually like this value isn't so not 50 grand off and we've seen that right

[00:15:52] like this especially recently it's uh it's kind of crazy so before we go on maybe we can get a bit of a quick reminder I know you like to

[00:16:01] define stuff you're been known for they call it man's planning as well a man's all before before we go on could you just maybe man's

[00:16:10] playing to me what a hedge fund is no I can't but I make an explanation area for you that's like your own designated version

[00:16:18] yeah so I mean look we don't talk at tonne about hedge funds on on this show we've talked about like you know the black stones of the world and stuff like that but we leave the hedge funds more for

[00:16:28] the guys over at the Canadian investor but hedge funds do play a role especially in what we're talking about here so it's important I have a bit of an understanding of how they operate

[00:16:38] it's an investment vehicle that pools funds mostly from accredited or institutional level investors to employ various investment strategies in order to generate high returns so essentially they take money they invested on behalf of investors and hopefully they make money

[00:16:54] now unlike traditional investment firms hedge funds often have more flexibility in their investment approaches allowing them to take both long and short positions in various financial instruments just like Dan was mentioning

[00:17:07] the goal is to generate positive returns regardless of how the market is doing this by using complex techniques such as leveraging derivatives and alternative investments hedge funds are typically managed by experienced investment professionals that where

[00:17:26] how to go in your vests and spend their summers in the Hampton drinking expensive pino grigio I'm kidding I threw that part in that's probably a category probably accurate but not entirely so anyways hedge funds are

[00:17:40] also this is where you guys are interested in there also subject to less regulatory oversight compared to some other investment funds and other investment vehicles yes so there's less but then there's also kind of more which is

[00:17:54] some of it where the hedge piece comes in is like they have to have like a long short position so it's short something then they have to hold a corresponding opposite position and some of them are like

[00:18:05] I'm struggling for an example but it's like if you own like a dog food company like you would also have to own like that's I just went out of horrible road because you really know

[00:18:17] like if you owned a housing company you would also like a real like a home builder you also have to own like I don't know

[00:18:23] like again I'm thinking of a really good one but you have to have an opposite trade that like basically is playing the devil's advocate on your

[00:18:32] right on your example that's where the hedge comes in you have to hedge your bets you kind of like you had a way the scales evenly between between the long and short so that if you are wrong you don't blow up the whole account exactly

[00:18:44] so some well-known ones would be Citadel which has 339 billion in assets and they were recently under fire they made an enemy with an army of redditors yes and Bridgewater which has about 200 billion in assets under management

[00:19:03] which is founded by the legendary Ray Dalio whose books about cycles I love and also has that that YouTube video how the economic machine works which go watch that watch it with my five month old he loves it

[00:19:15] I would start on me on your first the other this is an aside but haven't we made that joke about Ray Dalio where like someone's chirping him in the comments of somebody's like some old white guy given advice for an

[00:19:26] anti-vice and it's like that's literally like the modern father of economics okay so those are two of the biggest hedge funds in the world now the one that we're discussing today the one that we referenced in the article is nowhere near that size it's called Spartan fund management

[00:19:44] currently manages over a billion for their lives in names like yeah Spartan citadel Viking Bridgewater even it's just like yeah like it's pretty yeah that's like water team for but yeah the other ones are like

[00:19:59] don't mess with us seriously so Spartan fund although intimidating name not as big as the said it was in Bridgewater's of the world again just over a billion in funding so as far as hedge funds go on the smaller

[00:20:12] end but as far as businesses go you know they're pretty big now here's what gets interesting if you head over to Spartan fund management's website they have a tab for each one of their funds

[00:20:25] now Dan can you read me the first funds name and description please so first one is a BB fund in bracket BB Canada yeah BB fund Canada LP it's a multi manager multi strategy it aims to provide you know

[00:20:42] there's long-term capital appreciation through exposure diversified portfolio of investment managers managing niche strategies and a bunch of other buzzwords target low correlation to the S&P 500 in high risk adjusted returns there is no restriction on strategies

[00:20:56] but they may include fundamental long short capital markets commodity and currency arbitrage event driven fixed income and quantitative market neutral yes I understand all of that perfectly it's got yeah that's like literally

[00:21:11] if you like the the chat GPT prompt for that one is like explain to me my fund with the most buzzwords possible well we're trying to know this word so yeah I mean whatever all that means right the next one listed is a

[00:21:27] 11 fund it reads 11 fund is a short term trading fund focus on Canadian equity markets again nothing really to see here now let's move on to the third and final one this is where it got some Latin buzzwords go to the first start to get good yeah well actually

[00:21:43] I mean as a missed opportunity not unless you know this one off by heart the libertast real estate real asset opportunities fund and Dan I know you're right are you ready to do

[00:21:56] you know libertast off the top of your head the Latin origin of that word i will like liberty it sounds like so probably that will take it so this fund is a short biased equity the description for the fund reads libertast was designed to allow

[00:22:11] investors to benefit if there is a collapse in Canadian housing prices the fund uses fundamental top down macro economic analysis combined with detailed bottom up fundamental analysis and due diligence to determine individual

[00:22:28] opportunities that best expressed the funds macro economic investment theme so all of that the rest of the sentences can be forgotten about i want to focus in on the first one investors to benefit if there's a collapse in Canadian

[00:22:40] housing what qualifies for a collapse like what are we talking to you that's like it's because we saw big big drop being strong in the house president can you history this is 22

[00:22:49] so they went make money do they make money we got a call them are we are we'll is 8.9% to collapse or we look in at like a 2013. To me, like collapsed means like you're like 50%. Yeah, like I'm thinking like devastation, right?

[00:23:03] So I mean that's quite the elevator pitch, you know, hello Mr. Investor would you benefit from the devastating collapse in this country's housing market? You know what though? Like realistically if I'm not surprised me if you had like Canadian pension funds investing in this

[00:23:19] because as a hedge as a home back to hedges, there's an example. It's like yeah, because like you know they're exposed to the Canadian economy if they need to hedge against something it is. Perfect man. What a what a set of come on.

[00:23:32] Couldn't plan it better. Thank you. So if you view the details of that fund that is the libertas real asset opportunities fund that is betting against Canadian housing it provides some points on why you should invest in this fund.

[00:23:48] Can you hit us with those four points that they provide? Sure. So number one belief in the investment thesis. Canada has one of the most overvalued housing markets in the world in the Canadian economy is overreliant on debt growth and the housing market.

[00:24:01] That actually sounds pretty true to me. Pretty accurate. Yep. I forget what podcasts were on but but that sounds pretty pretty correct. Interested in participating in the aggressive short bias strategy that targets the cap to capture significant downside moves in the equity markets.

[00:24:18] So, number three. One of the few strategies of its kind available in Canada. So Canadian. I guess Canadian versus Canadian. It's not three spider-man's point. Another number. And suitable for investors. This is the hedge part suitable for investors seeking protection from long-term

[00:24:36] bear markets who can tolerate high risk. So you went down quite down the rabbit hole on this one. Well, it we're not done yet. So yeah, I mean, I did feel like as I was doing this, I was going from normal podcast or to investigate journalists.

[00:24:52] Are we like are we starting pivoting into a true crime pod? People would love that true real estate crime of the co-ordinating of two favorite things. Yeah, like a dirty money on Netflix. Yeah, that would be great series. We could do a couple episodes like that. Definitely shoot.

[00:25:08] Other people's money that book. And that is actually a great little subseries like four per month. Yeah, just kidding. I mean, they would just fit in probably nicely into the episode roll to X that. So other people's money would be an awesome one.

[00:25:19] And then there's all those guys that like escaped to have a wall. The Mick guys from like those guys from Vancouver that you know, last seen in Bali Indonesia ran away with a couple hundred million bucks. Yeah, and then there's like the, I think it's the sweet hearts.

[00:25:35] And then there's the developers. There's a bunch of, you know what? We're going to do. If you want to hear one of these episodes, just let us know. And if anyone from Netflix is listening, we'd love a budget for show based off of this.

[00:25:46] Yeah, I mean, well, like it would be cool, but I think we could just fit it right into this. Yeah. And then we'll do like, next time we do like when I was motivational. Absolutely anti-motivational motivation to not do the stuff we're talking about. Don't yeah. Okay.

[00:25:59] Yeah, for sure. Anyway, look at that. The note here says anyways, get back on. Let's get back on tracks. That's new. We were going right off top. Oh, are you typing that into me? Okay. Let's go.

[00:26:08] So there, their libertast real estate asset fund, the one that we're talking about, the one betting is the housing market, lost about 14% for the year. That's according to estimates from the funds manager seen by Bloomberg. It had been poised for positive year until the US dollar denominator units,

[00:26:26] tumble 11% November and 13% December. Now, going back a little bit, we saw Canadian home prices decline in 2022. They stabilized a bit last year. That was supported by the massive wave of immigration that we've talked a lot about and a fairly strong, strong job market for most of the year.

[00:26:47] The benchmark home price in November was 735,000, which was a 0.7% increase from the year earlier and up 37% from five years ago. Now, that's the end of your article. And I just included this piece right here because I thought it was kind of funny. It's very investigative, investigative journalist.

[00:27:06] I did not reach out, but the people in the article did reach out to Spartan and Spartan didn't respond to request for comment. So I just took that as, you know, they probably wouldn't respond to us either. This is where it starts to get good then.

[00:27:20] Yes, so it's probably a good time to bring up what is known on Wall Street as the Great White Short. Did you mean the Great White Shark? Because Shark Week isn't for a few months still.

[00:27:32] Ah, no. The Great White Short, I guess similar to a Great White Shark, the concept of both scary and potentially life-rending. So what is the Great White Short? Well, this idea goes back over a decade. It's based off the thought that the Canadian economy is propped up by

[00:27:51] inflated housing markets supported by the all-agopoly of the big six banks. So US firms were betting against the banks and thus essentially the entire financial system in Canada to collapse in the similar fashion or what is experiencing the US

[00:28:06] in 2008 with the global financial crisis. And they did this by short selling. Now, it's not a term that we've covered on the show. We usually have this type of stuff to our pod fathers that can even investor to talk about this kind of financial activity.

[00:28:19] So anyway, here we go. Nick, an area, can you give me a definition on short? It would be my pleasure. Short selling is a trading strategy where an investor borrows shares of a stock from a broker and sells them into the market with the

[00:28:32] expectation that stock price will decline. The investor then buys back the shares that a lower price and returns into the broker profiting from that difference in price. So in essence, short selling allows an investor to bet on the price of a stock or other financial instruments going down.

[00:28:51] In this case, we're talking about the Canadian housing markets. They are bet on the Canadian housing market going down rather than going up. It's a way to profit from a decline in the value of an asset instead of the traditional way from profiting off of the essentially incline.

[00:29:08] Now, short selling is obviously risky as losses can be unlimited if the price of the asset being shorted increases significantly. So now that we've got that definition, Dan, back to you, what is the great white short? Yeah. So from a financial post article in April of 2020, the latest

[00:29:26] great white short argument against Canada's banks has included at least one of the main players in the big short. The Michael Lewis book and movie about few investors who hit it big by betting against the US housing market in

[00:29:39] 0708. So new burger, burnman money manager, Steve Eisenman, sparked a fresh round of skepticism about the soundness of Canada's housing market last March by calling out lenders that underpin it in pages of the financial times one of the world's most influential business publications.

[00:29:56] I love these short sellers who are just like so like and you know, I've had one of the most prolific short sellers in in the market on on on Twitter space with me talking about just this. That was perfect for

[00:30:09] those of you. It's not nearly as PG is the podcast, by the way. But if you're interested in some extra listening on this. I would encourage you go listen to the recording but, he goes on to say can I even banks are now facing

[00:30:22] a storm that will test their celebrated sound. And you know, it vaccinations by perspective cause we have like so much evidence and the concept of like, and like there There's a lot of nefarious stuff going on in the community and real estate market from

[00:30:36] money laundering to mortgage fraud and blah, blah, blah. The US people got punished for that and it's easy to be like, this is gonna collapse because these guys are doing bad stuff but it's like, these guys are doing that for a while.

[00:30:47] Yeah, so here it's like, I don't know. And I really think that the realtor lawsuit, the class action lawsuit against realtor's right now is going to be a very, very big test against the justice system and kind of versus the US. But I digress.

[00:31:00] Actors kept the community housing disaster at bay, such as stricter regulation, low interest and unemployment rates, and strong population growth. So the banks also enjoy the backing of the community and government by mortgage default insurance through CMA to the Canada mortgage and housing corporation.

[00:31:14] So that last part of the article is where things start to get interesting for me. The, you know, quote unquote, stricter regulations compared to the US, stricter banking regulations. Those are mostly, I say, still in play.

[00:31:27] However, what has changed since that article came out in 2020 is that we don't have low interest rates anymore. And unemployment rates have changed as well. And you know, it's, well, unemployment is kind of the thing that everyone's watching

[00:31:47] then remember the whole back and then we brought it up several times and show the East stands for the unemployment part. That's the last one in the whole back and I'm, can you just give a quick reminder, quick

[00:31:59] damn finishing or a quick man's playing whatever you prefer us to what does means in, in economics sense? Yeah, well, we call it dance planning too. The, the whole back and I'm stands for Housing Orders, Profits and Employment.

[00:32:13] So the idea would be that this is the order in which things respond to interest rate increases or decreases. So if interest rate decrease, housing will be the first thing to ramp up in a recovery.

[00:32:24] So you know, all the realtors that are pumping that rate cuts are going to come and save us aren't wrong. They might just be very early because it will, it will be the first thing that responds for now, guys.

[00:32:34] It will be the first thing that responds is just it will take a while to respond because before like you have rate cuts, but at the same time you have recession and both of those,

[00:32:42] you need to start your recovery before housing can be the leading part of the recovery. Yeah. And which we saw in the, in kind of the crash phase of it, which was literally bank of kind of a fire warning shot, 25 bips housing market dropped like 10%.

[00:32:56] Like the next month. And then it fell for the rest of the year as rate hikes continue to go up. So housing dropped first because it's the most credit sense of product product that's attached to consumers.

[00:33:07] Then you see orders which is people ordering stuff, ordering lumber, building houses, ordering whatever. Yeah, furniture because they don't have equity in their houses anymore. Then you see profits because companies suffer as a result of decreased revenue, which increases top line increases or decreases the bottom line.

[00:33:25] And then employment because they have less money, they hire less people and they have to lay people off and unemployment rises. So each one of your hope acronym appreciated is always now.

[00:33:37] And each one of those that H O P E imagine like a big circle around each one of those kind of like looping back and forth. And that's the cycle right. Like each one of those things, it takes a while for that to happen.

[00:33:49] Remember the economy is a very large slow move in machine. Now if we look at that whole acronym and apply it to this article and this concept, you know that article three, four years ago now was written out of very different time.

[00:34:05] So it's kind of interesting to reanalyze this and say, well, the hedge funds that are betting against the Canadian housing market, you know, how will that play out now in this different world? Yes, we still have the regulations.

[00:34:18] Yes, the government backed banks and CMHC and all that stuff. Yes, the population is still growing even though we may have already kind of seen the peak of immigration. But again, now we've got that stickier inflation. We've got higher interest rates. We've got lower transaction volume.

[00:34:35] So what if employment goes south, which again is kind of what everyone's waiting for? What if rates stay higher for longer as we're seeing a lot of people predict what if our population grows slows as we're kind of starting to see, you know, news coming out

[00:34:51] of India news coming out of Canada saying that, you know, essentially people don't want to come here anymore because we've sold them a false promise. And not even just that like economic prospects are bad. Yeah, everywhere. Right.

[00:35:04] It's heart like we did just CP population growth for Canada probably for our lifetime. That's my guess putting it on. Putting it on. Time stamp that game. We'll still have to see 2023 and real. Yeah, P.P. P.P. That's probably not a bad thing.

[00:35:17] So you know, would these or could these things that we just mentioned push that short cell position to favor the hedge funds that again, that are betting against it? It's definitely an interesting conversation, but it's also scary things to think about. I mean, not thinking about it.

[00:35:38] 2023 being peak realtors is not scary. It's a good thing. If being peak population growth is really scary. So we really really do love you. But like, you know, does do all of these fundamentals could all of these fundamentals kind of unwind at the same time?

[00:35:50] Like, were they right that there was some underlying factor that could actually completely break the Canadian economy rather than just like, you know, be a correction? It's like we're fully toast. Like, like, the aggression and global financial crisis that you're, yeah.

[00:36:07] And I don't necessarily think that I think that we might be able to salvage our way out of this. Probably the longer term consequences is that you see this continued decline in GDP per capita, which is just reduction in quality of life for Canadians.

[00:36:21] And that, and then it just ends up being like, it's not the candidate that it always was. It takes a long time to be. Yeah, I do feel like such a boomer saying that. But I mean, like, you know, economically, like on paper. I hear you.

[00:36:32] So interesting in scary things to think about for sure. Yeah, also I should mention again, it came up in conversation as it has dozens of times probably over the past few years. The big short is such a good movie.

[00:36:43] One that we've brought up a ton and they do a much better job at explaining the role of hedge fund, short selling and they do it all in the context of real estate.

[00:36:51] So if you want to see the likes of Steve Correll and Ryan Gosling doing their thing on the silver screen or Margo Robby explaining investment terms in a bubble bath. Don't let it down on a glass. So like, you really think about it?

[00:37:05] Yeah, it's kind of hard to compete with that. I think anyway, let's wrap it up there before we get carried away. If you want to get more connected with the community of real estate investors, make sure you

[00:37:16] go check out our meetups the first second Tuesday, sorry, second Tuesday of every month and 15 cities across Canada, link in the show notes. If you need a better accountability system, I want to learn more and a more in-depth setting,

[00:37:29] go to realist.ca link in the show notes and we'd love to have you as part of our education community. I think that's everything for today. See you next time. The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice.

[00:37:44] Nick Hill is a mortgage agent with premier mortgage center and a partner in the G and H mortgage group. Jason number 10317 agent license M21004037. Dinofosh is a real estate broker, licensed with rare real estate, a member of the Canadian

[00:38:06] real estate association, the Toronto real estate board and the Ontario real estate association.