Housing Won't Be Affordable Until 2035 & The Future Of Mortgage Rates

[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.

[00:00:12] Welcome back and buckle up for today's episode of the Canadian Real Estate Investor podcast where we are diving into some wild market changes and some tricky challenges in the Canadian real estate landscape.

[00:00:28] We're going to cover the good, the bad and the ugly in today's news episode.

[00:00:34] RBC is talking about potential mortgage war coming up. What does that mean for you if you've got a renewal in the near future?

[00:00:44] Could this bank showdown actually save you some cash or is it just going to stir up more trouble in our already shaky markets?

[00:00:53] And experts are saying that affordability might be a headache all the way until 2035.

[00:01:01] So what is a smart investor supposed to do in this environment?

[00:01:05] White knuckle for another 10 years, I guess.

[00:01:07] We'll break down the juicy details about government moves, interest rate shifts and what they mean for housing.

[00:01:14] From the commercial real estate market rebound to Vancouver developers going bankrupt to shifts in the mortgage market, Canadians leaving the country in scary numbers and the suggestion that Canada becomes the 51st state in the United States.

[00:01:29] We have a lot to cover. So let's dive in.

[00:01:32] I don't be the real estate deal of the century. Yeah, I had to throw that with it. Yeah, exactly.

[00:01:36] From the Louisiana purchase all the way to the Canadian purchase.

[00:01:39] We also finish up the episode by looking at affordability in 25 major cities across North America.

[00:01:48] So the first episode is about war.

[00:01:51] And no, we aren't here speculating about World War three, although that does seem to be a popular pastime on Twitter for many folks.

[00:01:59] This is a different kind of potential war.

[00:02:01] A mortgage war.

[00:02:03] A mortgage war.

[00:02:04] Canadian banks, according to the Financial Post, Canadian banks could face a quote unquote mortgage war.

[00:02:09] And that's covered by RBC analysts with more than half a million of all mortgages.

[00:02:14] Canadian banks are set to be renewed in the next two fiscal years.

[00:02:17] So I'm going to just read this little quote here from the article, Dan, and then if you could give me some of the key points that you took away from it.

[00:02:23] So I quote, in today's market, lower mortgage rates will make a significant difference for Canadians whose mortgages were originated at all time low interest rates.

[00:02:33] For a mortgage that was taken out in June of 2020, a 50 basis point impact in the renewal would result in an annual savings of about $1,000.

[00:02:43] So here are the four key points that I took from this article.

[00:02:47] This expected mortgage war is linked to interest rates declining and over 55% of Canadian bank mortgages will be up for renewal in the next two fiscal years, leading to increased competition among lenders, which we know will now be boosted by the lack of a stress test on renewal.

[00:03:03] Next, we have significant consumer impact.

[00:03:06] So for mortgages from June 2020 and the 2021 era mortgages, a 50 basis point change in renewal rates could save borrowers around $1,000 per year, incentivizing customers to shop around for better rates now that the environment allows them to do so.

[00:03:23] Yeah, I mean, $1,000, it's not nothing.

[00:03:27] It's not a lot either though, right?

[00:03:29] But I guess that would be enough for some people to make that swing.

[00:03:33] I know people are ultra rate sensitive these days, right?

[00:03:36] I feel like the further you get into recession territory, the more those like little margins do start to matter though, to be honest.

[00:03:43] You know what I mean?

[00:03:44] Like people are budgeting now, if you're assuming you're going to lose money next year, then the less money that you can lose, like usually people don't budget in like those small increments in a bad, in a good environment, but in a bad environment, they do start to think about things like that.

[00:03:58] Totally.

[00:03:58] Totally.

[00:03:59] The next takeaway I had was, you know, TD banks, US growth restrictions and overall low loan growth are expected to intensify competition.

[00:04:06] So they haven't been super competitive in the Canadian market.

[00:04:08] They raise a lot of their capital in the US, so they often will have expensive rates comparatively.

[00:04:13] And obviously all of the big five banks see mortgages as a crucial anchor product to get, you know, you get somebody's mortgage, you can sell them a line of credit, a credit card, you know, some investment products, you can get the bank account, etc.

[00:04:25] Management, exactly.

[00:04:27] Wider and deeper.

[00:04:29] Exactly.

[00:04:29] Yeah.

[00:04:30] And the article does say that there's a couple of banks that they would consider at risk or most vulnerable to mortgage spread compression, which basically means that the amount of money that they're making on top of the government of Canada five year bond yield.

[00:04:42] And that would be Bank of Montreal, Bank of New Scotia and CIBC are considered the most vulnerable to spread compression and potential customer loss in this competitive environment.

[00:04:52] Yeah.

[00:04:52] Yeah.

[00:04:53] I mean, it's, it's really interesting to, to hear all of this.

[00:04:56] You know, I think, I just think there's, there's an element of clickbait to this, of course, right?

[00:05:01] Dan, we've heard about the mortgage renewal wall, the mortgage renewal cliff has come up on the show a couple of times before.

[00:05:07] Now it's the mortgage war.

[00:05:09] Like how many, how many bad words can you put after mortgage?

[00:05:12] There's lots of militant language going on in the mortgage world.

[00:05:15] I mean, it's, it's crazy.

[00:05:17] So I look, I mean, I don't, I, you know, me being the eternal optimist here, I don't think things are going to be as bad as, as the cliff and the wall and all those things have made it out to be.

[00:05:28] If anything, this mortgage war essentially just means there's going to be more competition in the mortgage market on the lender side of things.

[00:05:37] Right.

[00:05:37] So we do see people maybe actually benefiting from this as banks get more competitive to, to, you know, try to bring in more customers.

[00:05:45] Any, any other thoughts or takeaways from that, Dan?

[00:05:48] No, I, I think it's nice to see, right?

[00:05:51] Like it's one of those things where, you know, I've often talked about how Canada's economy is oligopolistic, right?

[00:05:59] Like there's not a lot of competition.

[00:06:00] That's like a few players.

[00:06:02] We have five banks, you know, you have a handful of telecom companies, et cetera.

[00:06:06] You know, five grocery stores.

[00:06:08] It's not like the U S where they have like thousands of banks.

[00:06:10] And so, you know, as a bank and you know, this, if you call your, your, your telephone provider, they're like, yeah, okay, cool.

[00:06:16] Go to our competitor.

[00:06:17] We'll see you again in two or three years when you're pissed at them.

[00:06:20] You know, like find me someone in Canada that hasn't had both Rogers and bell at one point in their lives.

[00:06:26] Right.

[00:06:26] We've all switched back and forth.

[00:06:28] Yeah.

[00:06:28] Yeah.

[00:06:29] And so to me, like, this is a good thing for, for the Canadian economy.

[00:06:33] If we're going to start seeing players who have previously not had to compete, like they're in a recession too.

[00:06:38] They have to fight to get our business.

[00:06:40] And so I want to keep seeing that take place for sure.

[00:06:43] All right.

[00:06:43] So bring on the war.

[00:06:44] We are ready for it.

[00:06:46] Yeah.

[00:06:46] Okay.

[00:06:46] So next article here, we're still on the topic of mortgages.

[00:06:51] This one is from Robert McClister from the financial post.

[00:06:55] Rob puts out a ton of great articles and not the first time.

[00:06:58] And it won't be the last that we referenced them on the show here.

[00:07:02] Mortgage borrowers will foot the bill for the government's GST cuts and other rebates.

[00:07:07] So if you're in a variable mortgage, Ottawa's new handouts could pick your pocket in 2025, says Rob McClister.

[00:07:14] Now, I did take, again, a little piece of the article because Rob just writes in such a funny way.

[00:07:21] So I'm going to read this first piece here, Dan, and then we can get into some of the points that I took away from it.

[00:07:25] But what thy government giveth, thine bond market taketh away.

[00:07:31] If Shakespeare didn't say that, he should have because it is true.

[00:07:34] Government's Yuletide generosity comes with a hidden price tag and mortgage borrowers will foot the bill.

[00:07:41] Love that.

[00:07:43] Yeah.

[00:07:44] Yeah, I love it.

[00:07:45] So in that regard, he's obviously talking about the GST holiday and the $250 checks that Justin Claus is giving out this Christmas.

[00:07:53] And the $200 stimulus that over indebted Ontario is doling out, these deficits, or sorry, these deficit funded gifts feel more like don't forget me at the polling booth, which is interesting, right?

[00:08:06] Like the taxpayers are kind of paying for this, like what many people are calling vote buying, right?

[00:08:12] Yeah.

[00:08:13] I mean, hey, it's Christmas.

[00:08:14] We're in a recession.

[00:08:15] Here's 250 bucks, right?

[00:08:17] Go buy yourself something nice.

[00:08:18] But in the grand scheme of things, $250 is a grocery shop for a small family and a half a grocery shop for your family of four or five at this point, right?

[00:08:29] For sure.

[00:08:29] Yeah.

[00:08:30] I mean, I love how the Justin Claus, man, Rob is funny.

[00:08:34] So my main takeaways from this article is government spending and stimulus like we've seen with the GST cuts and the other rebates.

[00:08:44] It's actually just probably going to lead to higher inflation and more deficits, which could cause investors to sell Canadian bonds and raise interest rates.

[00:08:55] Now, Dan, before I go on, maybe it's a quick refresher here for, you know, what thy government giveth thine bond market taketh away.

[00:09:04] That's spoken in old English, but regardless of it being in old English, it still might be a bit confusing.

[00:09:09] Can you provide maybe a little bit of context on why the bond market comes into play with something like this?

[00:09:15] Yeah.

[00:09:16] So what he's referring to in this regard is that these policies would be interpreted as inflationary.

[00:09:22] And so the bond market is seeing them as inflationary and the bond market is saying, OK, well, rates aren't going to be able to be cut in Canada.

[00:09:29] If the government is trying to stimulate consumer spending, which is inflationary, then the central bank won't be able to cut rates further.

[00:09:35] And if the bond market is basically saying the central bank won't be able to cut rates further, then the central bank, in many cases, won't be able to cut rates further.

[00:09:44] And that would mean that variable rate mortgages will not come down as quickly as they were originally expected to because fiscal policy, government spending, is keeping the economy strong.

[00:09:56] And you really only need to cut rates if the economy is not strong.

[00:09:58] Right.

[00:09:59] And so that's kind of where these variable rate holders are the ones who are footing the bill, as he says, for this policy.

[00:10:06] Yeah, no, great point.

[00:10:08] And on that piece about rate cuts, TD has also removed a quarter point cut from their forecast of the Bank of Canada's overnight rate due to exactly this, Dan, due to the fact that there's too much government stimulus going on.

[00:10:23] Now, that quarter point difference would cost boroughs an extra $700 a year in interest payments alone on an average $300,000 mortgage.

[00:10:33] So, you know, bigger mortgages going to cost you more.

[00:10:36] So that's kind of it for me on that article, Dan.

[00:10:40] I know the next one we've got is about mortgage as well.

[00:10:43] So let's keep the mortgage train going here.

[00:10:45] Yeah.

[00:10:46] So the next headline says Canadian mortgage rates to rise and housing to be unaffordable until 2035, according to Oxford Economics.

[00:10:54] Yikes.

[00:10:54] And this article comes from Better Dwelling.

[00:10:57] Yeah.

[00:10:57] So Canada avoided a mortgage cliff through rate cuts and extended amortizations, but Oxford Economics reports these measures will only briefly help new buyers.

[00:11:06] Their analysis shows housing won't become affordable until 2035, with mortgage costs expected to rise from 2026.

[00:11:14] While this signals economic strength, it offers little relief for those seeking long-term housing affordability.

[00:11:48] Yeah.

[00:11:50] So basically, you've got 10 years before we see affordable real estate in Canada based on this projection from, yeah, from Oxford here.

[00:11:59] Now, yeah, let's be real.

[00:12:01] You know, 10 years, try predicting stuff that happened.

[00:12:04] You know, go back to 2015.

[00:12:06] Try predicting what happened between now and, you know, between 2015 and 2025.

[00:12:10] 2025 to 2035, I can guarantee you we are going to see some crazy stuff as well.

[00:12:16] So take that with a grain of salt.

[00:12:18] Could be better.

[00:12:18] It could be worse.

[00:12:19] I don't know.

[00:12:20] Yeah.

[00:12:21] So they go on to say that lower mortgage rates and extended amortizations will temporarily boost affordability in early 2025.

[00:12:27] However, this will drive up home prices through increased leverage.

[00:12:31] And when mortgage rates begin to rise again, the affordability improvements will disappear.

[00:12:35] And I know TD modeled this into their projections for the impact of the new CMHC policies.

[00:12:43] And those CMHC policies are where the basically first time buyers can now spend up to 1.5 million and use up to a 30 year amortization with an insured mortgage.

[00:12:54] And people can also starting in January.

[00:12:56] So that policy comes out on December 15th.

[00:12:59] And then starting in January 15th, people will also be able to refi up to 90% of 2 million if they have added suites to their buildings.

[00:13:07] So pretty wild.

[00:13:09] Big changes in the pipeline.

[00:13:11] Well, and you've got even like your bearish economist groups, you know, basically saying that they don't feel this is going to yield any improvements in affordability and on prices.

[00:13:24] You know, typically Oxford would, they've always been modeling the market to the downside.

[00:13:29] And, you know, if they're saying that a lot of this stimulus is actually going to cause house prices to stay where they are.

[00:13:33] You know, I think that that's kind of been our projection for a long time.

[00:13:36] Right. It's like after the big drop, the market would trade sideways for a long time.

[00:13:40] That's kind of like another way that you can return to the average growth path.

[00:13:43] Right. It doesn't have to be more crash.

[00:13:46] Population growth is expected to slow, helping moderate price increases.

[00:13:49] However, national housing affordability isn't projected to return until 2035 with major cities like Toronto and Vancouver remaining unaffordable for average households due to the lasting effects of low interest rates and high leverage.

[00:14:01] Yeah. So, I mean, look, 10 years out, I still don't think that Toronto and Vancouver are going to be affordable, but who knows?

[00:14:08] So a couple of key points from this article, better dwelling.

[00:14:13] It's a big one, bunch of charts and graphs in there.

[00:14:15] So I'd recommend going to check this one out.

[00:14:17] And if you're watching on YouTube, there will be we are showing the charts on the screen here.

[00:14:22] But, you know, the Bank of Canada is expected to make several more rate cuts.

[00:14:26] Right. They've we've gone back and forth on if they're 25 or 50s, but a 50 BIP cut in December, followed by 425 BIP cuts in the first half of 2025 could bring the overnight rate down to 2.25 percent by June of 2025.

[00:14:44] So, again, these are just predictions, predictions by much smarter people than you and I, Dan, but, you know, not set in stone.

[00:14:51] And who knows what will happen and if, you know, what the reaction and the sentiment will be if we're down in the two, two and a half low twos by June.

[00:15:01] Now, while these cuts, of course, affect variable rate mortgages, fixed rate mortgages, which are actually currently lower than variables, are influenced by bond yields.

[00:15:09] And they aren't expected to drop much further.

[00:15:12] Now, we just spoke about bond yields in when we discussed the last article.

[00:15:16] So we won't go back into them, but let's say the five year conventional mortgage rate is predicted to stay around the mid fives until about 2025.

[00:15:24] And interest rates and forecasts begin rising again once we hit 2026, driven by higher bond yields, tighter monetary policy, which could actually signal positive signs for our economy, for economic growth and productivity.

[00:15:39] Right. Remember, if an economy is doing well, we can handle those couple extra points in an interest rate, whether it be for your home, your loan, your car, whatever that may be.

[00:15:50] So a lot to take away from this one.

[00:15:53] Again, this one kind of has the good, the bad and the ugly all wrapped up in this one article.

[00:15:57] And Oxford always just puts out really great information.

[00:16:00] So anyone looking for more information on that, go and find that article and read that Oxford report.

[00:16:05] Yeah, they have a great visual of the housing affordability by city.

[00:16:09] I'll put it up on Twitter as well.

[00:16:10] But but there's a really, really good like housing affordability index left to right on city by city.

[00:16:16] Toronto, Victoria and Vancouver at the top, Regina and Saskatoon in Newfoundland at the bottom.

[00:16:22] Obviously, most affordable.

[00:16:24] Love it.

[00:16:25] What do we got next here?

[00:16:26] Well, unfortunately, it looks like a bit of a mass exodus.

[00:16:30] And unfortunately, well, not unfortunately, I should say, but we're not talking about realtors from the from the business or mortgage agents from the business, even though we have seen that recently.

[00:16:39] This is something different.

[00:16:41] And this is Canadians looking to leave.

[00:16:44] So why don't you read me the title of this article and then the first piece here and then I can give you my takeaways.

[00:16:49] Yeah, well, I think it's not actually saying that Canadians will leave.

[00:16:55] It's saying that the government is expecting people with the visas expiring will be leaving by the end of next year and that they don't have a plan to get them out.

[00:17:03] Like this is one of those things that's been a lot of a lot of pundits have kind of been criticizing the government for basically like I know there was a journalist who was interviewing Miller and basically saying,

[00:17:13] how do you expect these people to go and the original response, which has brought on a lot of this criticism was, you know, that they basically expected them to voluntarily leave.

[00:17:21] So I'll read this.

[00:17:23] It's just the heading of the top of the article here.

[00:17:26] But basically Canada expects up to one in 10 people to voluntarily leave by next year.

[00:17:30] So one in 10 people being again, that's that's how big of a portion of our population.

[00:17:36] Like I think it was like 3 million people or something like that, that that that are in visas in Canada.

[00:17:42] Millions of Canadian visas expire next year in the country isn't sure how to deal with it.

[00:17:45] That became clear when policymakers fumbled in parliament when answering what Canada plans to do if they if people refuse to leave.

[00:17:52] And I think I've mentioned this on the show before.

[00:17:53] And I know I've certainly mentioned this in a discussion with with one of my consulting clients, a large developer in the city of Toronto that, you know, we we have had this thing happen before where stat can misplaced like a million people in Canada.

[00:18:08] Right.

[00:18:08] Ben Tao came up with that report.

[00:18:09] Around here.

[00:18:10] Yeah, there's like 100.

[00:18:11] There's a million overstayers, they called them, but basically people in Canada where they their visas had expired and they they didn't nobody knew if they'd left or what.

[00:18:22] Right.

[00:18:23] So it's crazy because you think like you just check flight logs or passports.

[00:18:27] It's like, isn't that the point of passports and all that stuff?

[00:18:29] But anyway, I like keeping track of this.

[00:18:31] Yeah.

[00:18:32] I guess this is like that.

[00:18:33] Come on.

[00:18:33] Yeah.

[00:18:33] It's kind of like that.

[00:18:34] Yeah.

[00:18:34] You do just need like a basic CRM kind of thing.

[00:18:36] Right.

[00:18:37] Like this is a classic, like right hand doesn't know what the left hand is doing kind of thing.

[00:18:40] Right.

[00:18:40] Canadian relationship management.

[00:18:42] There we go.

[00:18:42] Yeah.

[00:18:43] So the government of Canada expects nearly 5 million visas to expire next year and hopes those who lose residency will leave voluntarily.

[00:18:50] That's likely what will happen in most cases, which I agree with.

[00:18:52] A lot of people will just go, especially if our economic prospects aren't good.

[00:18:55] But the government of Canada has a long history of struggling to deal with those who refuse in order to leave from global crime bosses to foreign warlords.

[00:19:02] Of course, better dwelling had to put that that part in there.

[00:19:05] I know.

[00:19:06] I almost take that out.

[00:19:07] But, you know, we've done full episodes on the crime and how real estate Canadian real estate is like literally, you know, the golden goose for some of these international crime bosses.

[00:19:19] Right.

[00:19:19] Right.

[00:19:19] Mexican cartels, European drug cartels, mafia.

[00:19:25] Like it's crazy.

[00:19:26] And, you know, certain casinos in Vancouver, if you bring a duffel bag full of cash, you can go buy a house the next day.

[00:19:32] So very true, very scary and seemingly quite ignorant.

[00:19:38] And this is kind of one of those ignorance is bliss until it isn't.

[00:19:41] So a couple of key points for me from the article is, you know, obviously, and we've covered this a lot on the show, that Canada has shifted its immigration policy, moving away from those record growth numbers into a planned slow degrowth.

[00:19:56] And, you know, this change is coming ahead of next year's election now.

[00:20:02] Approximately, let's just call it five million, 4.9 million visas called 5 million or we'll round up here.

[00:20:08] We lost 100,000.

[00:20:10] Five million will expire between December 2024.

[00:20:13] So now and next year, December 2025.

[00:20:18] Now, many of these visa holders will qualify for renewals or for permanent residency, especially outside of, you know, the 43 major cities that we have here.

[00:20:28] And hundreds of thousands may become ineligible to stay.

[00:20:32] And that's where some of the issues lie.

[00:20:34] What are we going to do with those?

[00:20:36] Now, Canada faces the challenge in enforcing some of those departures.

[00:20:39] There's over 30,000 outstanding warrants in some cases of individuals even remaining in the country for extended periods of time after being ordered to leave several times.

[00:20:50] So someone needs to do something about this.

[00:20:54] I don't know who or what, but it seems like a very Canadian problem at this point.

[00:21:00] You know, we want and need people in this country.

[00:21:03] There's no doubt about that.

[00:21:04] But I'm not saying we need to go kick all these people out, but a rule is a rule and the law is a law.

[00:21:08] And, you know, if these are the laws and rules that we've implemented, we should stand by them.

[00:21:14] You know, I mean, I know that everywhere else in the world, I've had a lot of friends that have had working visas or, you know, people I know that live in the Caribbean that have visas down there.

[00:21:22] And, you know, everywhere else in the world seems to take that quite seriously.

[00:21:26] We'll see what happens, I guess.

[00:21:28] Anything else there, Dan, or should we keep moving here?

[00:21:30] No, I think we're good.

[00:21:31] Okay, so let's move over to enough about mortgages, enough about Canadians leaving.

[00:21:35] Let's talk about commercial real estate.

[00:21:38] Yeah, so this heading says the CRE, which is, is that an acronym?

[00:21:43] I guess it would be if you called it CRE.

[00:21:44] Do you guys say that?

[00:21:46] You're a CRE guy still, I think, right?

[00:21:47] CRE.

[00:21:48] Vice president.

[00:21:49] CRE, CRE guys, yeah.

[00:21:51] Commercial real estate, that's what it is.

[00:21:53] The commercial real estate job market is improving, but the explosion won't come until 2026.

[00:21:58] And the article starts off by saying, it's been a hard year to work in commercial real estate.

[00:22:04] Things are looking up with two rate cuts and more seemingly on the horizon, bringing an expected market turnaround.

[00:22:10] Oh, apparently not, according to what Oxford was saying earlier in this episode.

[00:22:22] Uncertainties around macro events.

[00:22:23] Like the election have been settled, allowing decision makers to act with more confidence.

[00:22:28] Hiring in the CRE industry has accelerated as the year comes to a close, showing improvement over the last year and earlier months of 2024.

[00:22:35] But despite an uptick in activity, a wholesale shift in the hiring picture, including changes to compensation, appears to be many months off.

[00:22:43] So, I mean, look, we've covered commercial real estate many, many times over the last few years of this podcast.

[00:22:50] And it has, some aspects of it have been very, very difficult, like leasing office space.

[00:22:57] Some aspects and asset classes have done extraordinarily well, like industrial and last mile shipping and contractor garages and that type of stuff.

[00:23:04] So, it's been a very tumultuous time for those in commercial real estate, especially those trying to break in.

[00:23:10] So, here's a couple of takeaways from that article regarding the commercial real estate job market is that compensation expected to remain relatively flat throughout 2025 with a projected 4.2 average increase.

[00:23:23] So, still moving in the right direction.

[00:23:26] Though there is downward pressure on compensation in what has become an employer's market.

[00:23:31] So, well, hiring has increased with 41% more management roles, 24%, 25% more analyst roles.

[00:23:39] Now, Dan, I don't want to throw shade at the commercial real estate guys because we love them, but isn't everybody in commercial real estate a manager or vice president or senior vice president or something like that?

[00:23:50] A lot of VPs for sure in that industry.

[00:23:54] Those guys love the titles.

[00:23:56] Got to do it, right?

[00:23:57] Yeah.

[00:23:58] Hey, you got to put something on that business card.

[00:23:59] So, the market is shifting towards asset management, which we've talked a lot about, right?

[00:24:04] It seems to be coming into a new world where asset management is more important than ever.

[00:24:11] And that has to do as well with portfolio preservation, right?

[00:24:15] Make sure your assets, the ones that you have right now, are performing at their highest and best use.

[00:24:20] Those are now more important, right?

[00:24:21] Asset management and portfolio preservation are now more important than new development, right?

[00:24:29] So, that used to be grow, grow, grow.

[00:24:31] Now, it's stay, hold, preserve, and improve what we already have.

[00:24:37] So, strong preference for experienced professionals.

[00:24:40] You know, this is a frustrating thing for young people when they go to look at, you know, what seems to be a somewhat entry-level job and they're demanding, you know, five to ten plus years of experience.

[00:24:51] Because entry-level opportunities have actually dropped almost 10% in commercial real estate.

[00:24:55] So, a significant market improvement isn't expected until 2026.

[00:25:00] The current hiring focus is on retaining existing value rather than expansion as companies really are focused on strengthening their current financial positions.

[00:25:12] Again, rather than going and talking, or sorry, rather than going and trying to grow and develop new products.

[00:25:19] And that is a perfect segue into maybe an explanation as to why that is the sentiment in commercial real estate here, Dan.

[00:25:25] Because you're going to tell me some pretty bad stuff.

[00:25:29] What's happening in the West Coast of Vancouver with some developers and closely associated commercial real estate people.

[00:25:38] Yeah.

[00:25:38] So, Vancouver developers are struggling with a wave of insolvencies as costs.

[00:25:44] Honestly, I'm surprised that Vancouver has been the one that really, where you're starting to see this.

[00:25:51] Like, I thought you'd see more of it in Toronto, to be honest.

[00:25:54] Anyway, the subheading says restructurings are more common in current difficult environment or difficult economic and regulatory environment.

[00:26:01] And regulatory, you know, we just did that episode on development charges.

[00:26:04] So, again, we know costs are going up, basically.

[00:26:07] It's harder to get zoning.

[00:26:08] It's harder to sell units.

[00:26:10] And developers are going bankrupt.

[00:26:12] Vancouver developers face mounting financial pressures as economic and regulatory challenges increase project insolvencies.

[00:26:19] Yeah.

[00:26:20] I mean, key challenges that these developers are facing include things like inflation, interest rate hikes, new taxes, increased in construction costs and labor and decreasing availability of labor.

[00:26:33] And, of course, Canada's favorite permit delays.

[00:26:36] Additional hurdles mentioned in the article include foreign investment restrictions, weak pre-sales, rent controls, higher fees, supply chain issues, and difficult financing conditions.

[00:26:47] Yeah.

[00:26:47] So, a couple of key points that we both took away from this, Dan, because we do like to keep a close eye on some of the stuff.

[00:26:53] I know that you do a lot of consulting for the types mentioned in this article.

[00:26:57] So, and, you know, we've talked a lot about insolvencies in some episodes.

[00:27:02] We had Scott Terrio on to do a full episode on that.

[00:27:06] Now, real estate insolvencies have increased significantly with a 43% rise in bankruptcies and proposals in Q2 of 2024 compared to Q2 of 2023.

[00:27:17] And, of course, multiple factors are creating these challenges for developers, right?

[00:27:21] We already mentioned some of them.

[00:27:22] Those increased interest rates, right?

[00:27:24] A couple of years ago, we were at 0.25.

[00:27:27] Then we went all the way up to 5 plus in the development space.

[00:27:31] Inflation, again, construction and labor costs.

[00:27:35] The permit delays are such a big thing for some of these guys.

[00:27:40] When you've got a large loan out and you're trying to pay off that land loan or trying to pay for your kind of infrastructure and ongoing costs, and you've got a big dollar figure to that amount and interest rates start to spike, your cost of debt and your capital stack alone can kind of go through the roof.

[00:27:57] And that alone can be a project killer.

[00:27:59] Of course, weak pre-sales, right, Dan?

[00:28:01] We've seen the pre-con market be devastated from the mayhem it was with people fighting and lining up, like, you know, it was the Taylor Swift concert just to get a studio apartment somewhere.

[00:28:15] Those days are gone.

[00:28:16] And, of course, you know, overall tough financing conditions.

[00:28:18] So those are my takeaways here.

[00:28:21] Yeah, I think to provide a little bit of context, you would want to compare this maybe to the global financial crisis.

[00:28:30] The current wave of insolvencies is considered more severe than the 07-08 financial crisis with CBRE handling 11 receiverships this year in that area compared to only three or four during the GFC.

[00:28:42] And industry experts now believe that this instability will continue.

[00:28:47] It's funny because industry experts from the CRE space were telling me that I was wrong a year ago, but I guess now all of a sudden they're the bears.

[00:28:53] With more receiverships expected and a gradual path to stabilization, I would agree with that assessment.

[00:28:58] I think it's pretty realistic.

[00:29:00] Yeah.

[00:29:02] Should we jump over to, this is a funny one.

[00:29:06] Trump?

[00:29:07] I had to throw this one in here.

[00:29:09] Yeah, no, it's funny, man.

[00:29:10] I posted this on Instagram.

[00:29:11] I saw that.

[00:29:12] That's why I did it because I was like, you know, sometimes your stuff gets a lot of shares, but this one just like blew through the roof.

[00:29:19] Oh, yeah.

[00:29:20] Thousands of shares in like a few hours.

[00:29:22] I was like, oh, man.

[00:29:23] The comment section was just an absolute mad.

[00:29:27] You know, it's even funnier as I saw a now I can't remember.

[00:29:30] This is like NARCity or Blonte or something like that.

[00:29:33] But it already done a had already built out a map of what Canada as the 51st state.

[00:29:40] Oh, no.

[00:29:42] And oh, my God.

[00:29:43] The comments, the comment section.

[00:29:45] If anyone's ever bored.

[00:29:46] I mean, Dan and I have gotten some pretty good comments over the years.

[00:29:48] But go pick a topic like this in the comment section.

[00:29:51] It's just entertaining.

[00:29:54] Let's say.

[00:29:54] Yeah.

[00:29:55] I think like a lot of people will say that I'm like a rage farmer on Instagram.

[00:30:00] I don't know if I'd call it that, but it is like it's just it's good entertainment.

[00:30:04] Really.

[00:30:04] You're actually you're actually somewhat of a real farmer.

[00:30:07] Dan actually has a bit of land and does some real farming.

[00:30:10] And I've been there and there's you know, there's cucumbers and tomatoes.

[00:30:13] There's no rage anywhere.

[00:30:14] You just post news.

[00:30:15] People just people just respond as they do on in Internet comments.

[00:30:20] So anyways, we've digressed.

[00:30:23] Dan, read me this title.

[00:30:24] We should probably read the article before we think that we're getting wild with whatever we're talking about right now.

[00:30:30] So the headline says Trump suggests Canada could become the 51st state after Trudeau said tariff would kill the economy colon sources.

[00:30:39] And this is a Fox News dot com article.

[00:30:42] This is an actual article.

[00:30:43] When I posted it, it was just a Twitter thing.

[00:30:45] So I kind of rolled the dice a little bit with that before it had actually become a headline.

[00:30:49] But the article goes on to say President-elect Trump suggested to Canadian Prime Minister Justin Trudeau, as we know, that they they met recently at Mar-a-Lago last week, that if a tariff for failing to address trade and immigration issues would kill the neighbor to the North's economy, maybe it should just become the 51st state sources told Fox News.

[00:31:09] I just like I, you know, every day you think the headlines can't possibly get wilder than they are right now.

[00:31:16] And they do.

[00:31:18] You know, I'm never one of those guys like we're living in a simulation, but I swear the last the past few years I've gotten more and more to understand why people say that.

[00:31:28] So so here here is a bit of a caveat, though.

[00:31:31] So the article did go on to say that the nearly three hour conversation continued about various other topics.

[00:31:37] And at the end, the Canadian guests called the dinner very friendly and very positive.

[00:31:43] Of course, that's what Canadian guests would say.

[00:31:45] Yeah, we had a good time.

[00:31:46] It was very friendly living up to, of course, our friendly reputation worldwide.

[00:31:52] However, the Canadians made no reference about becoming the 51st state.

[00:31:57] So it is, I guess, all hearsay a little bit at this point.

[00:32:01] But oh, man, what?

[00:32:03] That's the best kind of idea.

[00:32:04] I just love that we're in a news environment that you can publish like actually impactful headlines off of hearsay.

[00:32:10] But anyway.

[00:32:12] So a couple, Dana, as ridiculous as this could be, I know this is something that Canadians have played with, you know, before this was ever an article or ever a Twitter threat or whatever.

[00:32:24] I remember when I was in high school, there was like this big conspiracy theory about like the North American Union and like all.

[00:32:29] Yeah, I mean, I've heard it before.

[00:32:30] I think a lot of people have heard it before.

[00:32:33] This is like a terrible time, man.

[00:32:33] Exactly.

[00:32:34] And listen, as our economy has faltered and GDP has gotten worse and, you know, life here has gotten harder over the past 10 years.

[00:32:42] I've heard it come up more and more.

[00:32:44] Never, of course, on the front page of Fox News here and all over the Internet.

[00:32:49] But regardless of that, what are I what are I know you and I have discussed what are a couple of the key points that you took away from from this completely hearsay?

[00:32:57] Actual.

[00:32:58] Well, I think like I think I would actually prefer to discuss like real key points, which are the kind of a summary of that discussion.

[00:33:05] We've talked about it a little bit, but basically Trump threatened to impose 25 percent tariffs on Canadian goods due to concerns over border security and a claimed hundred billion dollar trade deficit.

[00:33:15] The border security being, you know, they've had a bunch of issues with people crossing from Canada into the U.S.

[00:33:20] They've had a bunch of issues with fentanyl crossing from Canada into the U.S.

[00:33:25] Trudeau expressed that such tariffs would severely impact Canada's economy, leading to Trump's suggestion that Canada could become the 51st state.

[00:33:33] Allegedly.

[00:33:35] The discussion involved into a semi humorous exchange about Canada potentially becoming two states, one conservative and one liberal with Trudeau as governor.

[00:33:44] Apparently.

[00:33:45] Is this real?

[00:33:46] This is real.

[00:33:47] This is on Fox News.

[00:33:49] It's OK.

[00:33:50] I went and looked at like many other articles and stuff as well, because I was like, I, you know, we're always hesitant to put things in the show that aren't.

[00:33:58] You remember when we did somebody else to blame, right?

[00:34:00] We can't.

[00:34:00] Yeah.

[00:34:01] We don't want to be given misinformation.

[00:34:03] Remember that other piece that was like twenty five thousand dollars as an exit fee if you try to leave Canada?

[00:34:07] And we kind of debunked that in the show.

[00:34:09] So we're not saying that this is the truth or that this is going to happen.

[00:34:12] But I tell you right now, this this is as hilarious as it is.

[00:34:16] It's not going to happen.

[00:34:16] It's very unlikely to happen.

[00:34:17] But it is the conversation happened.

[00:34:19] Yeah.

[00:34:20] Crazy.

[00:34:21] Anyway.

[00:34:23] OK, let's let's finish it off now that we are talking about both Canada and the U.S.

[00:34:27] One thing that would happen if Canada became part of the U.S.

[00:34:30] is that people would maybe look to move around a little bit and they'd say, oh, maybe I'll go move to Toronto or Vancouver.

[00:34:37] But what would happen is they would realize that's not very affordable.

[00:34:41] So we're going to do is we're going to finish off with this list of the twenty five largest cities across North America from a friend of the show.

[00:34:48] Wow, wow.ca.

[00:34:50] And I'm just going to start from the top.

[00:34:52] So this is based on price to income ratio.

[00:34:53] And, you know, we have to we didn't want just the top of this list.

[00:34:57] We wanted the top two spots on this list because that's just how we are in Canada.

[00:35:01] We are number one, baby.

[00:35:03] Number one and two.

[00:35:03] So top of the list, Vancouver, 12.7 price to income ratio.

[00:35:09] Toronto, 10.7 price to income ratio.

[00:35:12] Los Angeles is at 10.

[00:35:14] San Diego, San Francisco and then New York at 6.8.

[00:35:19] So and then you get to Montreal again, 6.4.

[00:35:21] And then the remainder are all in the U.S.

[00:35:23] You got Seattle, the Inland Empire in California.

[00:35:26] So that's basically like that whole area, Miami, Boston, Denver, Phoenix, Tampa, Orlando, Washington, D.C., a bunch of other places.

[00:35:36] Detroit's at the bottom and the largest, I guess, most affordable large city, Chicago and Detroit, 3.6.

[00:35:42] This is where it gets crazy for me.

[00:35:44] Okay.

[00:35:44] Like, you know, Canadians love Florida, right?

[00:35:47] Certain types of Canadians love Miami.

[00:35:49] We've got Miami down here with the average home price of 486,000.

[00:35:55] Gross medium household income at 80,000.

[00:35:58] Estimated population at 6.2 million.

[00:36:01] And their price to income ratio is at 6.1.

[00:36:03] We jump all the way back up to Vancouver, number one on the list.

[00:36:08] Population is only 3 million, just over.

[00:36:11] Gross medium household income is $14,000 less.

[00:36:15] But the house price in Vancouver on average is double that of Miami.

[00:36:21] You know, it just doesn't make sense.

[00:36:23] So, you know, of the home affordability in the 25 largest cities in the U.S. and Canada,

[00:36:28] Canada has three spots in the top seven.

[00:36:32] And one in first being Vancouver, second Toronto, and then number seven as Montreal.

[00:36:37] And in between those, right, we've got Los Angeles, San Diego, San Francisco, New York,

[00:36:42] you know, really world-class cities.

[00:36:44] You know, don't forget California literally is bigger than Canada in pretty much every way

[00:36:49] from population to GDP.

[00:36:51] Especially GDP.

[00:36:52] Yeah.

[00:36:52] Like it just, it blows us out of the water.

[00:36:54] So to see a list like this, you know, it opens my eyes to a few things.

[00:36:59] One, how small Canada really is.

[00:37:02] Because if we look at all the populations, right?

[00:37:05] I mean, Denver, 3 million people, same as Vancouver.

[00:37:09] Phoenix, 5 million people, bigger than Montreal at 4.6.

[00:37:14] Washington, D.C., 6.4 million people, almost the size of Toronto.

[00:37:19] You know, Atlanta, Dallas, Baltimore.

[00:37:22] I've heard some scary things about Baltimore.

[00:37:24] But as we get closer to the bottom of the list, Chicago and Houston make up some of the most

[00:37:28] affordable cities, right?

[00:37:29] With Houston, $305,000 average home price.

[00:37:33] Chicago, $324,000 average home price.

[00:37:37] And Chicago has to be my favorite city that has a winter.

[00:37:40] Yeah.

[00:37:41] I mean, I'm headed to New York in a few weeks.

[00:37:43] I absolutely love that city.

[00:37:44] But as far as American cities go, Chicago is an absolutely incredible one as well.

[00:37:47] So to see cities with a ton of pull, I mean, Detroit, no surprise there.

[00:37:51] Sorry, Detroit at the bottom of this.

[00:37:54] But Chicago and Houston right above Detroit.

[00:37:55] It just makes me think about, you know, the difference, the massive difference in Canada

[00:38:03] and America.

[00:38:04] And, you know, I guess we'll figure all that out when we become the 51st state.

[00:38:08] So stay tuned for updates on that crazy theory.

[00:38:15] Okay.

[00:38:16] Amazing.

[00:38:16] Thank you so much for sticking with us through the good and the bad and the ugly here.

[00:38:21] Whole bunch of links in the show notes for our course, for our community and our events

[00:38:30] that are coming up in the new year.

[00:38:32] Hope to see you at one of them.

[00:38:33] Share this podcast with a friend and make sure that you go like it and leave a review.

[00:38:39] Thank you all so much.

[00:38:40] The content of this podcast is for educational and informational purposes only.

[00:38:45] It is not intended as financial, legal, or investment advice.

[00:38:48] Always consult a qualified professional for advice tailored to your unique circumstances.

[00:38:53] The views expressed are those of the hosts and guests and do not necessarily reflect

[00:38:57] the opinions of affiliated organizations.

[00:39:00] Daniel Foch is a real estate broker licensed with Valerie Real Estate Inc.

[00:39:04] website is Valerie.ca, V-A-L-E-R-Y.ca.

[00:39:09] And a member of the Canadian Real Estate Association, the Ontario Real Estate Association,

[00:39:14] and the Toronto Real Estate Board.

[00:39:16] Nick Hill is a mortgage agent and partner at OWL.

[00:39:20] Mortgage license number 10317.

[00:39:24] Agent license M21004037.

[00:39:28] Agent license M21004037.