The 10 Best Cities To Build In

[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.

[00:00:12] Some absolutely shocking headlines coming out of the real estate industry right now and that's obviously what we are going to be talking about today, Dan.

[00:00:21] The Competition Bureau advanced their investigation into the Canadian Real Estate Association's policies. Ouch.

[00:00:30] Ouch is right. Almost every city in the GTA is becoming harder to get building permits. I guess that's another ouch.

[00:00:40] Rents rose by the lowest amount in three years. Do we have to keep saying ouch?

[00:00:46] I mean, if it hurts, I guess so. International enrollment is down 45% in Canadian universities. Do I dare say another ouch here?

[00:00:58] It's a lot of boo-boos. Not a single good news story in today's episode, I guess.

[00:01:04] Well, I mean, you did write today's episode and you don't really seem to be good at including good news. So I guess it's kind of fitting.

[00:01:13] Yeah, that's fair. Honestly, I did actually look really hard for a good news story. Let me add in one more headline.

[00:01:18] The moment where low mortgage rates and low real estate prices meet is coming according to the Globe and Mail.

[00:01:25] Is that good? I guess that remains to be seen. Also, inflation is down. So there's, you know, I guess that's good news, kinda.

[00:01:33] I feel like that is actually bad news, but we'll talk about it. We are gonna talk about that one.

[00:01:39] So let's include that one in today's episode. And then one more, which I consider good news, although the headline does not consider this good news,

[00:01:46] because I know the outlet and they're friends of the show.

[00:01:49] Canadian real estate investors capture new record market share. Go us.

[00:01:53] Yeah. Hey.

[00:01:54] That's us on the pod. I guess they're talking about our show.

[00:01:57] Us on the pod. I call our listeners across the country. I mean, I like that. That's a win for the good guys over here. But you know, we are demonized these days, I think unjustly.

[00:02:09] 100%.

[00:02:10] Okay. All of that aside, let's get started. Remember to register for our upcoming monthly free webinar at realist.ca forward slash webinar.

[00:02:22] So what are we starting off with today, Nick?

[00:02:25] Rents rise by lowest amount in nearly three years. Now this is from rentals.ca. I'm gonna just read a little excerpt from here.

[00:02:34] Rents in Canada rose at their slowest rate in 34 months.

[00:02:39] That's why I love, again, when we talk in months, like this is a small child here.

[00:02:44] Like there's a newborn baby.

[00:02:44] Yeah.

[00:02:46] So rents in Canada rose at their slowest rate in 34 months with average asking rents declining by 0.7% in May of 2024.

[00:02:53] The slowdown is being attributed to increased apartment completions, reduced population growth, and a overall softening of the labor market, which I think is getting to be pretty obvious for most people across the country.

[00:03:09] Now, if we go over to the West Coast, rents fell in British Columbia, also in Ontario, and in major cities, of course, like Vancouver and Toronto, experienced annual rent declines.

[00:03:21] Well, Edmonton, which seems to be the bell of the ball in Canadian real estate, was the only large market to see an increase.

[00:03:29] Saskatchewan saw significant growth in their major markets of 21%.

[00:03:34] And I think this has come up on the show before, Dan, shared accommodations, right?

[00:03:39] Because roommates are now the fastest growing household type.

[00:03:41] Shared accommodation rents rose overall as well.

[00:03:45] Dan, what are your takeaways from this article?

[00:03:50] Yeah, it seems to me like rent growth has been tapped out for this cycle in less affordable markets.

[00:03:56] So typically what you'll see in like your major cities, and I'm reluctant to compare like a Toronto to a New York or a London, but Toronto is very much Canada's gateway city in that regard, where people flow through the New York into the US, or they flow through the London into the UK or Eurozone in a lot of cases.

[00:04:16] And so typically what you'll see is a little bit of a dip, a little bit of a flatline, and then those markets actually get to a more appropriate growth during recessionary periods.

[00:04:27] And we'll talk about whether or not we're going to see a recession when we get into the inflation piece.

[00:04:32] But this makes sense to me given rents rose most in Ontario and BC in the past.

[00:04:38] And so they're kind of, they're just earlier, they're more forward looking, let's call it.

[00:04:42] This is obviously concentrated in Vancouver and Toronto where rents actually fell on a year over year basis.

[00:04:47] So rents are actually down and not like slightly down, they're down like 6%, 7%.

[00:04:51] We're going to get to that actually.

[00:04:53] But shared accommodation, roommates tells me people are dealing with the affordability crisis in new ways, basically combining households and becoming roommates, multi-generational households, etc.

[00:05:03] Like you're seeing, I think it's roommates, multi-generational living and young people staying at home with their parents are all growing.

[00:05:13] So those are all ways of people dealing with an affordability crisis by not renting, right?

[00:05:18] Or by renting in different formats.

[00:05:20] The big thing for me is that people, real estate investors are going to have to change their assumptions in their models.

[00:05:26] You're going to have to say, okay, well, rents, I can't model in a 5% or 6% or 10% year over year rent growth.

[00:05:34] I have to model more conservatively.

[00:05:36] Maybe I'm going to model, oh, what if my vacancy increases over the next year or rents decline over the next year?

[00:05:41] And then I get to a long-term growth of 2.5%, which is legally on a typical rental, what I was allowed to – or sorry, a non-rent controlled – sorry, a rent controlled rental, what I would legally be allowed to increase my rent by in most 2.5% to 3.5% in most jurisdiction in Canada.

[00:05:58] Yeah, I think I totally agree with that, right?

[00:06:01] The assumption piece has always been so dangerous for real estate investors, especially newer investors who almost always opt for either the best case scenario or a scenario so bad that it doesn't work anyways, right?

[00:06:15] I mean, again, Dan, back when interest rates were super low and we saw people modeling their deals out at those 1.5%, 2%, 3% interest rates and not looking at what would happen if those interest rates changed or went up.

[00:06:27] Well, now we've kind of got to flip the coin here and say, okay, well, what if those bad assumptions have?

[00:06:33] What if my rent is not where it is and what if I'm not raising it by exorbitant amounts a year, right?

[00:06:39] So I think this is all good.

[00:06:40] This is part of that healing process that I think you and I have been talking about for a long time.

[00:06:45] Now, let's do some deep dives into where we are seeing rent go up and where we are seeing rent go down.

[00:06:52] And I think the going down piece is going to probably not be shocking to anybody here, but the going up piece makes me feel good because some of these are markets that you and I have been talking about for quite some time.

[00:07:06] First one being our most recent vacation that we took together.

[00:07:09] I'm kidding.

[00:07:10] I'm kidding.

[00:07:10] It was a work trip, but we were out in the Paris of the Prairies, Saskatoon, and the province of Saskatchewan is now up 21% from a year ago.

[00:07:23] I'm sure that has made some people happy and some people very unhappy.

[00:07:27] Gatineau is up 21%.

[00:07:29] Nanaimo in British Columbia up 14% all the way over to the East Coast.

[00:07:33] Halifax up 12% Quebec City up 8%.

[00:07:37] Edmonton, a very popular investor market right now up 8%.

[00:07:41] And Dan, the next place that we are going to launch a meetup with our good friend and partner over there, Dawson.

[00:07:48] Winnipeg also up 8%.

[00:07:50] Now, I got the fun part.

[00:07:52] Tell me where things are going the other way.

[00:07:54] Yeah.

[00:07:55] So we're seeing similarly shocking declines in some of the more expensive markets in Canada that have already seen growth.

[00:08:02] Kelowna is down 11.3%.

[00:08:04] This is the worst to best declines.

[00:08:06] Burnaby minus 9.5% from last year.

[00:08:10] Brampton down 8.9%.

[00:08:12] Toronto down 7.5%.

[00:08:13] Vancouver down 6%.

[00:08:15] Etobicoke down 4%.

[00:08:17] And Mississauga down 3%.

[00:08:19] Year over year for rents.

[00:08:20] So take me through some of the key points that we got from this report on rentals.ca.

[00:08:26] They do an awesome monthly rental report.

[00:08:28] We try and cover it probably, I don't know, every couple of months.

[00:08:31] So whenever there's something notable, and I would call this one pretty notable.

[00:08:35] Yeah, agreed.

[00:08:36] Okay.

[00:08:36] So a couple of key points from my side of things, Dan.

[00:08:39] And as overall Canadian rents rose by 3.3% annually to an average of $2,187.

[00:08:49] That data is from August of 2024.

[00:08:53] Still very expensive, but that does mark the slowest growth rate in 34 months, which I'm sure is making a lot of people happy because rent was getting a little wild there for a second.

[00:09:02] Now rent increases have moderated due to, again, as we said, increased apartment completion, slower population growth, and that softening of the labor market.

[00:09:13] And the average asking rents have also, and this might seem a bit weird because we're talking about how high some of them are overall,

[00:09:22] but they've actually declined by just less than a full percentage point, 0.7% since reaching that record high of $2,202.

[00:09:32] And that was in May of 2024.

[00:09:34] So again, now we're down to 2,187.

[00:09:36] Not a huge difference, but I mean, take that 20 bucks or 15 bucks and go buy yourself a coffee or a meal.

[00:09:42] Yeah, I think it's a really interesting and important note because when we get to talking about CPI,

[00:09:48] we're going to talk about rents in inflation and rentals.ca, who I would say probably has better data, to be honest,

[00:09:55] than what the Bank of Canada is putting out in their CPI basket.

[00:09:58] No offense, but shelter seems to lag a lot in CPI.

[00:10:02] Rentals.ca is saying that it's flatlined, yet it's still reading as part of inflation as high.

[00:10:08] And so it's a little bit of a question mark.

[00:10:10] They put in an interesting comparison from condo versus purpose-built rental,

[00:10:14] where they mentioned purpose-built rental apartments increased by 6.5% annually,

[00:10:18] while condominium apartments rose only by 0.1%.

[00:10:23] So basically didn't rise, I would call that.

[00:10:25] And so-

[00:10:26] The high rises aren't rising.

[00:10:27] Yeah, but this is good because this is an incentivized purpose-built rental development.

[00:10:31] But as an investor, you have to think about,

[00:10:35] oh, I'm now competing with all of that new purpose-built rental housing stock.

[00:10:38] You go look at housing starts, CMHC housing starts, and rentals are like the-

[00:10:42] If it wasn't for purpose-built rentals, we wouldn't be having housing starts.

[00:10:46] So studio condos have decreased for six consecutive months, down 3.3% year over year in August.

[00:10:53] And significant regional variations exist.

[00:10:56] Obviously, some areas like Saskatchewan seeing increases,

[00:10:59] while BC and Ontario saw some pretty big declines, which you already covered.

[00:11:03] So let's-

[00:11:04] Anything you want to add before we hop into the next one here?

[00:11:06] I'll just say two quick things here.

[00:11:08] One, I love to see the purpose-built rentals.

[00:11:12] I like to see that section of the market grow because that means a lot of the incentives

[00:11:16] and new products that we've seen come to the market are actually working.

[00:11:20] The other thing I will add is I am totally okay with studio condominium rents decreasing

[00:11:26] because as a man who once lived in a studio in a relationship,

[00:11:31] studio apartments are a funny thing.

[00:11:33] And they are just getting smaller and smaller.

[00:11:36] And for a while there, they were just ridiculously expensive.

[00:11:39] So I think we're seeing some good stuff.

[00:11:42] But yeah, let's keep moving here, Dan.

[00:11:45] Yeah.

[00:11:46] So hit me off with the next one.

[00:11:48] Well, have you ever wondered where is the best city to develop property?

[00:11:54] Because that's what we're going to cover next year, Dan.

[00:11:57] I know you probably thought about that being you.

[00:11:59] I honestly haven't really wondered, but I know you're trying to do a hook here.

[00:12:03] So I probably should, but honestly, now that you've asked me the question,

[00:12:07] I probably should be thinking about that.

[00:12:09] Well, you don't have to wonder anymore, okay?

[00:12:12] Because Build, B-I-L-D, released another municipal benchmark study.

[00:12:19] And they are a great organization, friend of the show,

[00:12:21] that we've covered a lot of reports from over the years.

[00:12:24] So Dan, hit me with this first piece here.

[00:12:26] Well, yeah.

[00:12:26] When we were at the OHBA, you actually interviewed him about,

[00:12:31] it was the day before they released this report.

[00:12:34] So basically, they built Hire's Altus Economic Consulting to create this

[00:12:39] GTA municipal benchmarking study.

[00:12:41] And it shows how cities handle property development.

[00:12:44] They did this twice before 2022 and 2020 as well.

[00:12:47] So it's becoming like a every two year kind of thing.

[00:12:50] So this report specifically, this build report, which just covers, as you said, in the GTA,

[00:12:56] but the CHBA, the Canadian Home Builders Association, another friend of the show,

[00:13:03] does a similar report that ranks towns nationally.

[00:13:08] And let's just say that almost all of the worst ones are, of course, here in Ontario.

[00:13:14] I mean, Ontario.

[00:13:16] So if you're listening to this and you're wondering how your town stacks up,

[00:13:20] well, just assume that it's doing better than any of the ones that we are going to discuss on this list.

[00:13:27] Yeah.

[00:13:27] And we're not going to do a whole episode on this yet,

[00:13:30] because we are going to wait for that 2024 CHBA report to come out,

[00:13:34] because they did one in 2020 and 2022 as well.

[00:13:36] So I'm assuming, I don't know.

[00:13:37] I know you got in an argument with the guy from CHBA at the-

[00:13:40] The president, actually.

[00:13:41] Yeah.

[00:13:42] Well, actually, we both kind of got this right.

[00:13:44] No, I'm just joking.

[00:13:45] But no, he's a great guy.

[00:13:47] I think he's going to come on the show,

[00:13:48] and hopefully we can have him on when they release the report.

[00:13:51] So we'll have to reach out to him to discuss that.

[00:13:54] But I'm going to read their list first, because this is from their 2022.

[00:14:00] And then we'll get to the build report, and we can go through the 2024 GTA numbers.

[00:14:08] So estimated approval timelines by municipality in 2022.

[00:14:11] I'm just going to read the list from best to worst, okay?

[00:14:14] So best approval timelines in the country, Charlottetown, followed by Saskatoon,

[00:14:19] then Regina, Winnipeg, Calgary, Edmonton, St. John's, London, Ottawa, Brampton.

[00:14:24] I'll leave it there.

[00:14:25] That's your top 10 right there, okay?

[00:14:27] Now, give me an idea of what this study looks at, Nick, the build study.

[00:14:34] And then we can kind of dive into...

[00:14:36] I'll read three of the key findings from the report, and then you can read the list of the GTA's worst,

[00:14:43] and then we'll move on to the next article.

[00:14:45] Because we are going to do...

[00:14:46] Again, we're going to do a full episode on this when we have the national data set.

[00:14:50] Yeah.

[00:14:50] So the study looks at several planning policy-related factors that include things contributing to housing affordability

[00:14:59] and pressures in different regions.

[00:15:02] And those include things like demographic and residential development trends,

[00:15:07] breakdown of municipal planning development application stats,

[00:15:11] reviews of municipal charges that have been imposed on new developments,

[00:15:16] analysis of municipal features and tools used to facilitate more efficient and transparent development processes,

[00:15:23] and an overview of municipal achievements and commentary on noteworthy planning trends and issues.

[00:15:33] Yeah.

[00:15:34] So I'm going to quickly read the three key findings that I found here.

[00:15:37] And then we'll get to the wall of shame.

[00:15:39] So housing affordability has worsened since the first report that they did.

[00:15:44] This is number one.

[00:15:44] Number two is that new home building didn't keep up with population growth.

[00:15:48] No surprise there.

[00:15:49] I'm not going to belabor that discussion.

[00:15:50] This is the really key one from my perspective.

[00:15:53] Application submissions have fallen significantly over the last two years,

[00:15:56] threatening future housing supply.

[00:15:58] And so you went from basically 2,400 applications in 2021 to 2,100 applications in 2022

[00:16:06] to 1,200 applications in 2023.

[00:16:09] Okay.

[00:16:10] So we're already at half from 2,400 to 1,200.

[00:16:13] Now let's look at January to May of 2024.

[00:16:18] You only have 430.

[00:16:20] So we're on track to hit basically below 1,000 applications.

[00:16:24] That is wild.

[00:16:25] I think that deserves another ouch, to be honest.

[00:16:28] Yeah, that's an ouch for sure.

[00:16:29] And then the fourth key finding is that timelines are improving, but they're still remaining excessively high.

[00:16:35] And this is where you're going to get to the wall of shame, which is average timeline by all application types, by municipality.

[00:16:43] And we're going to go from best to worst.

[00:16:47] Okay.

[00:16:48] Yeah, this hurts.

[00:16:49] Okay.

[00:16:50] So first, which is the best, we've got Barry.

[00:16:53] Now back in 2022, took an average of 13.1 months.

[00:16:58] Actually in 2024, only 11.2 months.

[00:17:02] So we are actually down 1.9 months.

[00:17:06] Dan, why don't I do the first five here and you can do the last five.

[00:17:08] Is that what you want to do?

[00:17:09] Yeah, and just read the 2024 because we'll dive into it at a later date once we get to the national.

[00:17:13] Right.

[00:17:13] Okay.

[00:17:14] So Whitby, we've got 12.4 months.

[00:17:17] So over a year.

[00:17:18] Oakville, 14.

[00:17:20] Over 14 months.

[00:17:21] Brampton, over 14 months.

[00:17:23] And then Clarington, which keeps on making the news for some not so great stuff, 14.3 months.

[00:17:31] So over a year, other than in Barry where you sneak in at 11 months, every one of these you're waiting over a year.

[00:17:39] For your application.

[00:17:40] So those are actually all the either improvements or the same.

[00:17:44] Now let's get to the fun stuff and see.

[00:17:46] Only a couple got worse.

[00:17:48] But these are just so long regardless.

[00:17:50] It doesn't even matter if they're worse or not.

[00:17:51] It's just crazy.

[00:17:52] Yeah.

[00:17:53] So basically we have Vaughn at 18 months, Innisfil at 19 months, Oshawa, Markham, and Milton at just under two years.

[00:18:01] And then, oh, Bradford's just under two years as well.

[00:18:04] And then over two years, you've got Toronto, Mississauga, Caledon, and Richmond Hill.

[00:18:07] Richmond Hill is actually almost three years.

[00:18:10] 33.6 months for an application.

[00:18:13] Like, guys, what are we doing here?

[00:18:15] Champions of affordable housing, man.

[00:18:18] Oh, man.

[00:18:19] I guess let's pivot to inflation now.

[00:18:21] We'll get to, I guess, some fake good news or whatever.

[00:18:23] I don't know what we're calling this.

[00:18:24] But I'm just going to read a tweet here from David Rosenberg, Econ Guy Rosey, founder and president of Rosenberg Research Associates, Inc.

[00:18:32] It says, strip out auto insurance premiums and mortgage interest costs.

[00:18:36] And Canada's CPI deflated 0.1% month over month in September.

[00:18:41] And the year-over-year trend has collapsed to under 1%.

[00:18:46] The Bank of Canada shouldn't have to think too hard about cutting rates 50 basis points at next week's policy meeting.

[00:18:53] I agree with that tweet.

[00:18:55] Any takeaways on your end from today's CPI print, Nick?

[00:18:59] Yeah, I mean, you know, I am very interested to see what happens.

[00:19:04] And I guess we'll timestamp this.

[00:19:06] This is being recorded on October 15th here just so people understand when we're talking about there's the next Bank of Canada meeting where they will or will not either cut rates.

[00:19:17] They either will cut rates or hold them.

[00:19:18] I doubt we'll see an increase.

[00:19:20] You know, I think a lot of people have been waiting for that 50 basis point cut.

[00:19:24] Some people have been waiting for the wrong reasons.

[00:19:27] You know, I think my key points and takeaways from the Consumer Price Index report that was published in September, so last month, is that CPI rose 1.6% year-over-year.

[00:19:40] And that's down from 2% in August, making this the smallest yearly increase since February of 2021.

[00:19:49] So that seems to be a good thing.

[00:19:51] And gasoline prices fell 10.7% year-over-year.

[00:19:54] I think oil just blew off again, like another 5% today, which is October 15th.

[00:20:00] So that might stay.

[00:20:01] That might hold.

[00:20:01] Okay, nice.

[00:20:02] I thought like the Middle East tensions would probably cause it to increase, but I think that we're at demand destruction phase of the whole recession thing, stuff going on in China, et cetera.

[00:20:11] We're going to talk about China too, actually.

[00:20:12] Demand destruction phase.

[00:20:14] I like that.

[00:20:15] Yeah, I mean, gasoline prices contribute significantly to overall CPI deceleration.

[00:20:22] And then, you know, CPI excluding gas actually rose 2.2%.

[00:20:26] So that does go back to match August's increase, but that was before I knew that, you know, we're down another 5%.

[00:20:34] So, yeah, you know, interesting.

[00:20:37] I'm excited to see what the Bank of Canada does with this information.

[00:20:41] What about you, Dan?

[00:20:41] What are some other takeaways from your side of things?

[00:20:44] Yeah, so big takeaways from today's CPI print from my perspective was rent prices.

[00:20:50] They have as increasing at a slower pace of 8.2% year over year compared to almost 9% last month.

[00:20:56] So rents are disinflationary.

[00:20:58] I would actually say based on the rentals.ca data that we just presented, rents are deflationary.

[00:21:03] But again, their data must be lagging because it's not actually...

[00:21:06] Rents are going down on a year over year basis according to rentals.ca.

[00:21:09] They're going up 10% on a year over year basis according to StatCan's data.

[00:21:15] So there's got to be...

[00:21:16] There's something going on here and this is where the Bank of Canada is forced to use kind of lagging data,

[00:21:21] which means that they overshoot in either direction, right?

[00:21:24] Because similarly, they use mortgage interest, which we'll talk about.

[00:21:28] But so mortgage interest is like a huge piece of...

[00:21:31] If you just take like the two components of shelter out of inflation, we're almost at 0%.

[00:21:35] And Canada is one of the only places that actually uses mortgage interest as a component of CPI,

[00:21:42] which I recently learned from Benjamin Tao.

[00:21:44] I think New Zealand is the only other one.

[00:21:46] And again, the Bank of Canada is creating that increase, right?

[00:21:50] So they're kind of battling themselves.

[00:21:51] Food prices, again, I don't need to mention this one.

[00:21:54] People know that food prices are rising.

[00:21:57] They rose 2.5%, outpacing headline inflation for the second consecutive month.

[00:22:01] And on a monthly basis, CPI fell 0.4% in September following a 0.2% decline in August.

[00:22:08] So on a monthly basis, we're actually disinflationary for two months in a row now.

[00:22:12] Okay.

[00:22:13] Disinflationary, but not deflationary, right?

[00:22:16] Because everyone's still complaining about how expensive things are.

[00:22:19] Yeah.

[00:22:20] And that's because of cumulative inflation, right?

[00:22:22] So adding all of these price increases over time together,

[00:22:27] cumulatively, prices are up like 7%, I think, higher than when this whole inflation thing started,

[00:22:34] if not even more, right?

[00:22:35] Yeah, that's a great point about cumulative inflation.

[00:22:39] Now, let me explain why it doesn't feel like inflation is getting better,

[00:22:43] even though the technical CPI is improving.

[00:22:48] So let's use something that every homeowner out there has to deal with, home insurance.

[00:22:54] Let's use that as an example.

[00:22:55] Now, cumulative inflation refers to the total increase in prices over a period of time,

[00:23:01] not just in the year over year change, which is what we were just referencing, Dan.

[00:23:06] So again, let's use home insurance as an example.

[00:23:09] Year one, home insurance premium is $1,000.

[00:23:13] Year two, there's a 10% increase.

[00:23:16] So now it's $1,100.

[00:23:17] It's 10% inflation.

[00:23:18] Year three, an 8%.

[00:23:21] Now that's $1,188.

[00:23:25] So 8% inflation, but 18.8% cumulatively, right?

[00:23:30] 18.8% together from that 10% and now the 8%.

[00:23:34] That's a sneaky little cumulative.

[00:23:34] Exactly.

[00:23:36] Now in year five, it even gets worse, right?

[00:23:38] Year five, we see a 5% increase, right?

[00:23:41] So it's not as bad as year two where we saw the 10 or even year three where we saw the 8.

[00:23:46] Year four-

[00:23:47] So the increase is getting smaller.

[00:23:48] The increase is getting smaller, but the overall price is going up because now that home insurance

[00:23:53] premium is $1,247, right?

[00:23:57] We started at a thousand.

[00:23:58] That's 5% inflation, but 24.7% cumulatively.

[00:24:03] So even though the rate of inflation is decreasing from 10 to 8 to 5%, the actual cost keeps rising.

[00:24:09] So by year four, you're paying $247 more than year one, despite the improving inflation rate.

[00:24:15] And this cumulative effect is why so many people right now don't feel the relief from the so-called slowing inflation, right?

[00:24:25] Their costs are still significantly higher than they were a few years ago, even if the rate of increase is slowing down.

[00:24:33] So wages also don't really keep pace with cumulative inflation, further exacerbating the feeling of financial strain, especially when you're getting to the point where we're kind of layoffs and wage growth is kind of stagnant.

[00:24:43] And adding in the fact that we've seen a massive increase in LMIA, which is basically labor being replaced by a labor market impact assessment, which means you can get labor from outside of Canada.

[00:24:54] That's been net deflationary.

[00:24:55] Well, some people would argue that's net deflationary on labor.

[00:24:59] Actually, Trudeau interestingly wrote a paper about that in like 2014 before he was elected.

[00:25:03] Or was he elected?

[00:25:04] Yeah, 2015, right?

[00:25:05] Yeah.

[00:25:06] 2014, he was saying like how he didn't agree with the temporary.

[00:25:10] Doesn't agree with inflation?

[00:25:12] I don't agree with inflation.

[00:25:13] Nobody.

[00:25:14] That's an easy one to win an election on.

[00:25:17] But no, I thought that was interesting because he was kind of saying that he felt that that was bad policy.

[00:25:22] But I actually think it can be argued from either way because this Canadian economist named David Card studied the Marial Boatlift, which is like if anybody's watched the Griselda thing, the Marialitos, the 7% increase in Miami's population happened like in a matter of three months.

[00:25:39] Wasn't net deflationary on wages.

[00:25:41] Anyways, the point being it's tough for wages to keep up regardless of whether they're going down or up and whether or not immigration has an impact.

[00:25:49] So when most people are expecting slowing inflation to mean that prices are going down, they don't actually realize that it just means that prices aren't going up as fast.

[00:25:59] So prices going down is deflation.

[00:26:01] Prices going up slower than before is disinflation.

[00:26:05] Right.

[00:26:06] Great.

[00:26:08] Now, let me just do a quick refresher.

[00:26:10] Let me explain inflation, disinflation, and deflation.

[00:26:14] And I'm a mortgage agent, so I'm going to use mortgage interest as the example here.

[00:26:21] Okay.

[00:26:21] This is like a loose dictionary piece right here.

[00:26:24] I just used home insurances and mortgage interest as examples because those were the two mentioned in Rosie's tweet.

[00:26:32] Well, there you go.

[00:26:33] Thanks, Rosie.

[00:26:34] Okay.

[00:26:34] So inflation.

[00:26:35] Now, this occurs when prices are going up over time.

[00:26:38] For example, if the average mortgage interest rate was 3% last year and increased to 3.24% this year, that's an 8% inflation rate in mortgage interest.

[00:26:52] Okay.

[00:26:53] That's inflation.

[00:26:54] Now, let's talk about disinflation.

[00:26:56] This is when the rate of inflation is slowing down, but prices are still increasing.

[00:27:03] So using our mortgage interest rate example, if your rate increased by 8% last year but only increased by 5% this year, that's disinflation.

[00:27:16] Now, rates are still going up, but they're just going up slower.

[00:27:20] Okay.

[00:27:21] That's disinflation.

[00:27:22] Now, let's talk about deflation.

[00:27:25] This happens when prices actually decrease over time.

[00:27:30] In terms of mortgage interest, if the average rate drops from 3.24% to 3.15%, that's deflation.

[00:27:41] Rates are actually going down, not just increasing more slowly.

[00:27:47] So in the current context, we're seeing disinflation in mortgage interest rates.

[00:27:53] They're still increasing year over year, but at a slower pace than before.

[00:27:58] And of course, this contributes to the overall disinflation in the economy, which actually helps to bring down the inflation rate.

[00:28:08] Yeah.

[00:28:08] And I think mortgage interest is an especially important one because basically if people are just paying debt and paying extra interest, it's money that they're not using in the economy.

[00:28:17] And so it's an especially tough one because so many mortgages will be renewing next year, and that's going to be keeping upward pressure on the mortgage interest portion of CPI.

[00:28:26] So you would imagine that they're hoping that they can get this to be less inflationary or disinflationary or even deflationary on mortgage rates at least so that people can, again, not be spending money on interest and just burning money, but spending it on growing their businesses, whatever, buying nice Christmas gifts for their family, going on vacation, whatever.

[00:28:44] Anything other than just interest, right?

[00:28:48] And so you would think that they might really want to target those people who are renewing those one, two, and three-year mortgages now or next year, which means that the Bank of Canada could actually be in a hurry to get rates down, honestly.

[00:29:02] And on that note, hit me with the next headline, my only good segue of the show today.

[00:29:08] Nice. What an alley-oop here. Okay. The moment where low mortgage rates and low real estate prices meet is coming, and that is from our friends at the Globe and Mail.

[00:29:19] The article says,

[00:29:51] Yeah, I mean, I'd agree with that. So a couple of key takeaways from this segment for me, Dan, is a period of low mortgage rates and low real estate prices is either approaching and may well be upon us.

[00:30:06] And I think that's potentially, you know, we're in fall now, if you're Canadian and you haven't realized it, but there's snow in some parts of the country.

[00:30:15] So late fall, early winter.

[00:30:17] It would be a Canadian show if we weren't talking about the weather.

[00:30:20] There you go. Exactly.

[00:30:21] So, yeah, I mean, I think it is time, you know, if you're looking, if you've got a renewal or a refinance or a purchase or anything like that in the next couple months, talk to your lender, talk to your broker.

[00:30:33] The Bank of Canada has begun its rate cutting cycle.

[00:30:37] I'm sure we are all well aware of that.

[00:30:39] And of course, experts have been predicting several more cuts all the way into through at the end of this year, all the way to early and even mid 2025.

[00:30:50] And then, of course, the average down payment required for homes, home purchases in Canada has also been decreasing.

[00:30:57] And this is some good news.

[00:30:59] Hey, we said there's no good news.

[00:31:00] This is good news.

[00:31:01] That down payment requirement for home purchases has reached its lowest point since 2020.

[00:31:07] Now, again, I feel like there's like a three or four year period in there, three and a half year period where, you know, it was just kind of fake and crazy in that COVID era.

[00:31:16] But, you know, I think, you know, Dan, one of your signature lines trading sideways, it looks like that really does apply here.

[00:31:25] Yeah, 100%.

[00:31:25] And again, the high rates are still making it difficult for buyers to pass the stress test in the mortgage.

[00:31:31] So I think it would be worth considering.

[00:31:34] I mean, we've seen them make concessions on the stress test to on renewals, right, for insured and uninsured.

[00:31:40] So it wouldn't surprise me once we get rid of some of this rate volatility, if the stress test is on the table.

[00:31:47] Experts are suggesting we need rates to drop further.

[00:31:49] I think that's like everyone's kind of accepted that that's going to happen, you know, 50 to 75 basis points.

[00:31:55] It's 1% for variable rates.

[00:31:57] Buyers are being advised to get mortgage preapprovals if they're considering buying kind of now spring market, etc.

[00:32:04] Even if rates aren't at their lowest, you want to make sure you're ready.

[00:32:09] And then at least, you know, you might get a better rate by the time you're closing or by the time you actually have to purchase.

[00:32:15] So walk in a rate just in case, protect yourself against the upside.

[00:32:19] But, you know, you can still realize the downside, get a new preapproval by closing.

[00:32:24] It seems a bit early from my perspective when they're suggesting where, you know, it might be an opportunity.

[00:32:31] They're kind of saying it's right now.

[00:32:32] I still think, you know, I was just at the Greybrook event actually and Ben Tao was speaking.

[00:32:37] And he was saying, you know, there's probably 18 to 24 months left to clear all of this inventory, especially condos.

[00:32:43] And then you get to that supply gap when, because remember, you have 100,000 condos closing over the next little bit and very few being built, as I just mentioned from that build study.

[00:32:52] And so once all of that inventory clears, and I would pay very close attention to how much inventory is sitting in the market.

[00:32:59] Once you start getting back to that low days on market, that's when you can anticipate the market picking back up.

[00:33:03] Not before.

[00:33:04] And again, there's no point in really rushing about this.

[00:33:07] So I just thought that was interesting.

[00:33:08] What do we have next on the list here?

[00:33:13] Nick, I think this is, we're going to jump over to and take the long, I think the longest intercontinental flight you possibly can other than Australia.

[00:33:20] Australia, you got to do a whatever they call it.

[00:33:22] Layover.

[00:33:22] Yeah.

[00:33:23] Yeah.

[00:33:23] We usually take flights across the country here, but today we are going across the world because just in China is reportedly looking to tax its ultra rich individuals overseas.

[00:33:36] Those who have put wealth into non-Chinese real estate or had large investment gains.

[00:33:42] And that is from our good friends at Bloomberg.

[00:33:45] And if you've been following the show for a while, you know we've done episodes on money laundering and a lot of the kind of funny business activity that has come out of China and found its way into Canadian real estate.

[00:33:59] So I think we both saw this coming, Dan, especially with the collapse of Country Garden and Evergrande China's real estate market and economies in some trouble right now.

[00:34:08] So this might be why they're moving to tax.

[00:34:10] They're ultra rich for those overseas investment gains, right?

[00:34:43] We'll be in force here.

[00:34:45] And we will see what happens.

[00:34:47] Yeah.

[00:34:48] Yeah.

[00:34:49] I think this one's interesting.

[00:34:50] There's a couple of points here.

[00:34:51] So I think that it's worth – you can't really dismiss the impact of geopolitics in Canada because we're such an international country, right?

[00:34:58] Like just today, I didn't really have time to add it to the notes for today's episode, but October 15th, there's a lot of news coming out between conflict between the Trudeau government or Canada and India's government as an example.

[00:35:11] And again, we know that India is our leading source of international student demand.

[00:35:15] And again, mentioned in the intro but not going to actually get to it today is the 45% decrease that we've seen in international student demand coming from India for Canadian institutions.

[00:35:28] I think that if this actually takes place, there's potential to see a negative wealth effect from China in Canada, right?

[00:35:36] Where you see Peter Routledge did that McLean's article in 2016 basically outlining Canada's exposure to Chinese capital.

[00:35:46] And I think that if they have to liquidate, it wouldn't surprise me that Canada could see some declines as a result, especially in the luxury market.

[00:35:55] And then finally, I think that this is a really, it's a very unique illustration, but it's a really important illustration of what happens when your government doesn't have land transfer tax revenue.

[00:36:04] Because we talked about this earlier and when we were discussing austerity and whether or not we could see it in Canada.

[00:36:09] And there's potential for Ontario's government and Toronto's government who both basically saw a huge drop in land transfer tax revenue to have to do something similar.

[00:36:18] So worth paying attention to.

[00:36:20] Okay, let's move on to the next one because we are firing through these news articles and yeah.

[00:36:24] Yeah, I mean a lot of news these days, man.

[00:36:26] It's like, I mean you and I keep up with news now professionally and there's been just so much.

[00:36:33] I feel like we haven't done a news episode in a while though.

[00:36:35] So there's a big bit of a battle.

[00:36:36] It's because there's been so much other stuff to cover too, right?

[00:36:39] All the changes in policy and new financial instruments and everything.

[00:36:42] Okay, anyways, that being said, Competition Bureau advances investigation into the Canadian Real Estate Association's policies.

[00:36:50] So Canadian Real Estate Association, CREA, who we often mention and cover on the show.

[00:36:56] The Competition Bureau is now investigating CREA for potential anti-competitive conduct related to commission rules and the realtor cooperation policy.

[00:37:07] Now a court order has been obtained requiring CREA to provide relevant information to support this investigation.

[00:37:16] And the Bureau is examining if CREA's policies discourage competition among realtors and make it difficult for alternative listing services to compete.

[00:37:27] Yeah, so CREA did put out an article on their site on March 15th saying they were monitoring the NAR settlement announcement.

[00:37:34] The investigation is ongoing and there's no conclusion of wrongdoing, but they are ramping up their, I don't know what you call it, enforcement or ability to kind of like poke or I don't know what you call it, surveillance.

[00:37:44] They're looking for public input as well.

[00:37:47] So they basically have like this call for anybody who's out there who has anything to say about it.

[00:37:53] Uh-oh.

[00:37:54] Yeah, and this, I know, I know that's when you know you're in trouble.

[00:37:56] Hey, do you not like realtors?

[00:37:57] Come and tell us about it.

[00:37:58] Yeah, I mean, this is the largest single industry association in Canada or one of the largest single industry associations.

[00:38:04] And obviously, this is a potential copycat to the US lawsuit, the NAR lawsuit, which is what CREA mentioned that they're monitoring.

[00:38:10] So let's revisit that lawsuit because I think it's important parallel to draw.

[00:38:14] Yeah, now when Dan says NAR, he's not just doing an Australian accent saying no.

[00:38:19] This is actually the National Association of Realtors.

[00:38:23] And Dan, I don't know if we ever got around to putting an episode out about it when this was kind of the hot thing, I guess, earlier this year.

[00:38:32] I think we did some content on it, yeah.

[00:38:33] We did some, but you know, some fascinating things about the National Association of Realtors.

[00:38:39] They are one of the most powerful and largest lobbying groups in America.

[00:38:45] Okay, like that is serious.

[00:38:47] So they wielded a ton of power and things kind of really came crashing down for that organization and some of its members earlier this year.

[00:38:57] So some key points from the NAR case and settlement and some of its implications are that the National Association of Realtors reached an agreement on March 15th of 2024 to settle claims related to broker commissions.

[00:39:11] Now, real estate agents must now enter into written agreements with buyers before home tours that disclose compensation details.

[00:39:22] Agent compensation must be objective, meaning that they must have like a flat fee or percentage or provide an hourly rate and they cannot exceed that agreed upon amount when the deal is done.

[00:39:35] And the offers of compensation between the professionals, like so the buyer agent getting paid by the seller agent is no longer allowed on MLS platforms.

[00:39:47] Agent compensation remains fully negotiable for both buyers and sellers.

[00:39:50] And the changes were obviously aimed at increasing transparency and consumer understanding of real estate transactions.

[00:39:56] So could Canada go the same way?

[00:39:58] What do you think, Nick?

[00:39:58] I mean, maybe you and I had said this when we saw it initially, right?

[00:40:05] Like, you know, I think Australia is probably set for something like this, possibly New Zealand, anywhere where those real estate organizations are super powerful.

[00:40:14] I think Australia doesn't even have buyer agents.

[00:40:16] I think they have the auctions, like where it's like our national sport.

[00:40:19] You just go in the street and start.

[00:40:22] No, actually, it's just like everybody's just standing on the street, just yelling at the heads.

[00:40:27] Honestly, dude.

[00:40:29] Okay.

[00:40:30] So do you want to do this last one?

[00:40:32] Yeah, let's do this last one because I think this is worth mentioning and then we'll get out of here.

[00:40:37] So Canadian real estate investors.

[00:40:41] So that's all of you listening.

[00:40:43] Capture a new record market share.

[00:40:46] Good work.

[00:40:47] Again, from our friends over at Better Dwelling.

[00:40:50] So a couple of key points from my perspective out of this article, Dan, is that, again, Canadian real estate investors reached that record market share of 30.4% in Q1.

[00:41:01] That is up from 22% in Q1 of 2020.

[00:41:06] So four years we've managed to chip away at about another 8% of the market share.

[00:41:11] Now, government policies are actively encouraging investor participation in the real estate market.

[00:41:16] So is this a surprise?

[00:41:18] Not really.

[00:41:19] We know that the government wants more of it and we know that Canadians want more of it as well, right?

[00:41:23] There's that Royal LePage study, one in four Canadians plan on investing in real estate.

[00:41:27] So all roads kind of led to this at some point.

[00:41:31] Now, the Bank of Canada's methodology likely underestimates the true share of investors in the market, according to this article, which you're going to either explain or tell me how incorrect I am here, Dan.

[00:41:44] Yeah, not you.

[00:41:45] But I disagree with their methodology because they would use – so I'm looking at the Bank of Canada website right now for anybody who – that's the five people who watch our YouTube videos.

[00:41:55] But basically, it's a share of mortgage home purchases by type of home buyer.

[00:42:02] But the only way that they know this is if somebody's name appears on two different house titles, right?

[00:42:07] Like that's – so if you – or if it's a corp, right?

[00:42:09] So if it's corporately owned or if it's – but if – you know, my first house, my parents co-signed.

[00:42:14] And so their name was on two houses, right?

[00:42:17] So had they not been investors otherwise, they now would have appeared – or if you own a cottage, right?

[00:42:22] So they're using Terranet share of homes that are owned by multiple property owners.

[00:42:27] So I don't necessarily know if I agree with the fact that their methodology underestimates it.

[00:42:32] I actually think it overestimates the number of investors because –

[00:42:36] Yeah, I'd agree.

[00:42:37] I'd agree with that.

[00:42:38] Yeah.

[00:42:38] Next, institutional corporate and foreign investors are not captured by the Bank of Canada's data.

[00:42:44] They actually would be, I think, given corporate – they use corporate ownership but not – and multi-property ownership.

[00:42:51] Concentration of the risk in the real estate market is leading to potential issues such as negative cash flow properties in expensive cities like Toronto.

[00:42:56] I would agree with this from the article.

[00:42:59] I think that we are seeing like, you know, massive amounts of people being cash flow negative, especially in the Toronto condo market.

[00:43:05] And rising mortgage delinquencies suggest that over-leveraged speculators, keyword speculators, dominate the market, potentially lacking exit strategies.

[00:43:14] I would agree with that one as well.

[00:43:16] And I think that that's predominantly concentrated in the condo market where it is pretty illiquid.

[00:43:21] I think that the cash flowing, ground-based, you know, kind of detached market, it seems to be pretty healthy right now, to be honest with you.

[00:43:29] I mean, you know, it's like balanced.

[00:43:31] People are buying and selling safely.

[00:43:34] Nobody's losing their shirts.

[00:43:35] I don't know.

[00:43:36] Anyway.

[00:43:36] Yeah.

[00:43:36] That's all we have for today, I think.

[00:43:39] Yeah.

[00:43:40] Great episode.

[00:43:41] Lots of news.

[00:43:42] Lots to keep up with.

[00:43:44] So keep listening because you know that we love to cover this stuff and love to keep all of you informed so you don't have to go out and put all this stuff together yourself.

[00:43:55] If you like what you heard here, please go leave us a review.

[00:43:59] Rate the show five stars.

[00:44:00] It means the world to Dan and I who sit here on a video call looking at each other, wondering if anyone out there listens or cares.

[00:44:08] On that other note, we do have a ton of other great stuff and free resources for you.

[00:44:13] Realist.ca.

[00:44:14] Go check it out.

[00:44:15] There is both a free and paid group.

[00:44:17] If you want to take your investing to the next level, book a call with me and we can see if it's a good fit for you.

[00:44:23] And then make sure that you sign up for this month's webinar, next month's webinar.

[00:44:27] We always have either webinars or great guests and a bunch of other ways to help you achieve your real estate goals.

[00:44:37] As always, thank you so much for listening.

[00:44:40] We'll see you soon.

[00:44:40] I like how you wore your Chevy Corvette hat today.

[00:44:44] Well, I wore all green because I forgot to make this joke because we just did an interview with someone from TD.

[00:44:50] And I was like, hey, I'm wearing all green.

[00:44:53] And he wasn't even wearing green.

[00:44:55] He had a little pin on.

[00:44:55] But that's also a good episode.

[00:44:57] Commercial financing for owner-occupied stuff.

[00:45:01] Coming soon.

[00:45:02] Stay tuned.

[00:45:02] Love you all.

[00:45:03] Thanks.

[00:45:03] The Canadian Real Estate Investor Podcast is for entertainment purposes only and it is not financial advice.

[00:45:11] Nick Hill is a mortgage agent with Premier Mortgage Centre and a partner in the G&H Mortgage Group.

[00:45:18] License number 10317.

[00:45:21] Agent license M21004037.

[00:45:26] 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.

[00:45:38] Thank you.