Trade War & Stocks Vs. Real Estate

[00:00:12] Welcome back Canadian Real Estate Investors. Today we are going to cover a handful of articles. I'm just going to fire off some headlines here. Canada's housing market is not immune to the trade war pain. The real crash to fear in the trade war is housing, not stocks. These all sound bad, but some of them are actually pretty good. Construction costs are dropping. That's good.

[00:00:32] But trade wars add some risk, yeah. Toronto area home sellers are facing a barrage of lowballers, which means that people are listening to this podcast and taking advice to go and lowball houses. That's good and bad for some, I guess. Yeah. Tariffs are weighing down the housing market. So, I mean, this is all stuff that we told you was going to happen, by the way. We're just going to read these articles as our victory lap. Did you just do the, I told you so?

[00:00:54] Yeah, I did. Our plan and the housing game, which is a kind of non-partisan thing Mike Moffitt's involved in that, you know, presented a couple of cool plans for politicians during this election. And will the trade war affect industrial or other types of commercial real estate? Right. Yeah. So, before we get into all of those, because obviously that's a lot of ground to cover. Do you got anything you want to ask people to do? I do.

[00:01:24] I know we're supposed to do call to actions and stuff like that. Yeah. People have told us that they don't even know what we do, Dan. They just know us as like the real estate guys. So, this is what we do. Dan is an incredible real estate agent. He helps people buy and sell real estate, whether it is a condo, an investment property, you name it across the country. Reach out to Dan.

[00:01:41] I'm a mortgage agent. If you need a mortgage, I'm a mortgage agent at owlmortgage.ca. We help investors and homeowners alike across the country. We also help people do that themselves through our online, amazing online community, realist.ca. So, go check that out if you want to take your real estate investing game to the next level. Join a free meetup man. We're almost at 10,000 people on our meetup.com group. And Dan, we just got back from Edmonton. We are in Halifax next month.

[00:02:09] Come out and see us at these free real estate events. And if you become a realist.ca member, you also get access to our paid events, which have been pretty awesome as of late. Yeah. Free access to our paid events. Free. Sorry. Yes.

[00:02:26] Yeah. Membership is like a hundred bucks a month. You get a seven day free trial. Go to realist.ca and you can click on the link for a seven day free trial. It's sweet. It's an awesome community. It's great for accountability. It's great to meet other investors. A lot of people are doing deals together, investing in other people's deals, working together as contractors, GPs, et cetera. So, we've got two group coaching calls a week, online networking with investors, capital partners, exclusive deals. You get those free tickets, like I mentioned, to all of our in-person events.

[00:02:53] Early access to cutting edge real estate technology, PropTex, and access to a handful of industry experts. We usually have about one industry expert per month. And the last thing I'll mention is, you know, you mentioned that I'm in the real estate space. If you want to buy or sell real estate, I love to help people, especially listeners. I got a pretty big team. A lot of people ask if I'm like busy. I'm actually not as busy as most people think, but I do also have a team that takes care of a lot of clients at scale.

[00:03:17] And if you're a real estate professional and you want to join my brokerage, I own a brokerage now. You can check it out at Valerie.ca and always looking to grow. So, let's dive in.

[00:03:29] Yeah, let's do it. Okay. Article numero uno, Canada's housing market is not immune to the trade war pain. I think we have all come to realize that. As Canada's economy grapples with the fallout from the ongoing trade war with the United States, one economist says that the closely watched Canadian housing market may be its next casualty.

[00:03:51] The tariffs imposed by U.S. President Donald Trump's administration will inflict pain on every one of Canada's economic sectors, even those not directly dependent on exports to the U.S., according to Tony Stilo, director of Canada economics at Oxford economics. I'm going to quote here. Tariffs are going to hit the targeted sectors, obviously, but they're big enough that they're going to cause a broad recession. Tony Stilo told BNN Bloomberg in an interview.

[00:04:22] And the key points that he kind of makes in the report and article that he did is that the trade war is obviously going to impact or could significantly impact the housing and real estate markets. Not just housing, but housing would really be that kind of drawdown on the consumer side. And then also commercial real estate, which we're going to get to later in the show.

[00:04:41] But like, you know, I mean, there's some obvious implications, I think, on, you know, I mean, retail, you know, with retailers trying to get some like more of those Canadian made products that everybody seems to be lining up for now. But then also in industrial, you know, producers of the tariff affected industries. I think the, you know, the commercial real estate is the obvious one that what happens in the housing market side is the interesting question.

[00:05:04] The tariffs are obviously expected to cause a widespread economic downturn affecting all sectors and housing would be included in that. And housing is already showing signs of weakness with nervous buyers, rising listings and falling prices, which we're going to get into a little bit further in this episode. Yeah, well, speaking of the falling prices, that's something that obviously everyone, whether you are a buyer, a seller or an investor, everyone wants to know what's happening with prices, right?

[00:05:30] So a further 5% drop in housing prices is expected nationwide. Of course, that will vary. It might be higher, might be lower. It's probably the average. We, you know, very different markets across the country here, but expect most, if not all of those markets to go down a few points.

[00:05:49] Lower interest rates and stable lending conditions and an undersupply of housing will likely be a little bit of a catch in and probably establish a new price floor. Lots of speculation about more interest rate cuts on the table and tighter lending practices as well. So lots of variables that will affect that looming price floor that maybe we haven't hit yet.

[00:06:16] And then, of course, major cities like Toronto and Vancouver, along with other markets, energy dependent markets such as St. John's, Edmonton and Calgary, where we just were, Dan, a lot of, you know, oil money and energy money there. These seem to be the most vulnerable markets to some of those potential and maybe inevitable price declines. Totally agree. I think, I've always liked Tony Steele's exceptional analysis. He was actually going to come on the show. I got to get, I got to talk to him again.

[00:06:46] Yeah. Him and I chatted quite a few times. He's a, yeah, he's a, he's a really good guy. I interviewed him for Better Dwelling once. And actually, speaking of people coming on the show, we had Rob Carrick on the show and the next article comes from him. And actually, this is funny because. Yeah. Somebody left a negative review. I don't know if they deleted the review because I can't find it anymore. I was trying to like read it verbatim, but it was like something like, you know, you guys are like, I don't know, just too negative.

[00:07:11] And that Rob had put me in my place in that episode because I was too negative. But I think now reading this headline that I might not be as negative as him about, about real estate. So. I just pulled it up. It was not deleted. You want me to read it? Yeah, read it. Yeah. Okay. Okay. It says need to settle down with all the negativity, two stars. Look, we love reviews. We, most of our reviews are great. We love them so much that we read the bad ones. Yeah. Hey, listen, we're, we're not perfect. Okay.

[00:07:37] So these guys seem to be knowledgeable, but almost every episode is pretty doom and gloom and it's all speculation. I think Rob Carrick kind of put them in their place the other day, especially Dan. Dan tries to act like he can predict the future, constantly referencing charts, but it never gets as bad as these guys make it out to be. I thought Mr. Carrick hinted at numerous, at that numerous times. Yes, there can be tough times, but again, it's never going to be as bad as everyone says. Try to be less negative. You know, we, we did try.

[00:08:04] You made me do like this, like bull case episode right after that. But we also, we put out a ton of, of content and there's a lot of negativity out there and we cover that, that stuff. We, we don't add our own opinions to it. We, we present the data. So we appreciate reviews. We like good ones better, obviously, but we read the bad ones as well. Yeah. It's funny. Like, you know, this person is upset that I'm too negative, but then if I go on like, you know, some other platform, well, usually Twitter.

[00:08:34] But, you know, if I go on Twitter, people think I'm too positive. If I'm like, yeah, you know, prices might draw down like 10% and they're like, no, no, it's going to be 30%. You're like, you're a realtor. You're so bullish. It's like, okay, well, I, you can't make people, you know, happy. Right. No, you can't. Unfortunately not. So, so I'm not going to try to, I'm just going to try and be, be right. And I feel like a lot of the stuff that we said was pretty right. Like, you know, we said that the trade war impacts were going to happen. Now these articles are coming out.

[00:09:02] I feel like we've called a lot of stuff really well, to be fair. We have. We don't get enough credit for it. We called the, we called the first bull trap on house prices. We called Toronto condo, the whole Toronto condo thing. I feel like I was pretty much like the leading person in that. So I'm going to pat myself on the back. CMHC changes. We called all, yeah. I mean, many CMHC changes we've called. Yeah. We called the, we called the contemplation of the removal of the stress test, which was like a good one. I feel like this person is just wrong. I'm sorry.

[00:09:31] I hope you're still listening to the show. I didn't mean to offend you by being negative. All of this to say, Rob Carrick just wrote this headline. The real crash to fear in the trade war was housing, not stock. So I'm just saying, I'm not, maybe I wasn't the bear on that episode. It goes on to say, as ever in economic calamities, I, and this is the only one I don't paraphrase by the way, cause I love the way that Rob writes. So as ever in economic calamities, the quick and easy way to assess damage in the trade war

[00:10:00] is to see how much the stock market is falling, which we are going to talk a little bit about. And, you know, we'd probably don't need to cause you've all been seeing it. What's happening with stocks tells us how financial markets see events and how investors are affected in the moment. To truly gauge Canadians wealth, look at the housing market across much of the country. It has ground to a halt. Sales have plummeted while prices remain flat or drift downward.

[00:10:27] The housing industry claims this is merely uncertainty driven, suggesting sales will bounce back once the trade war ends. What they're not discussing is the looming threat of recession and its potential impact on home prices. Which is another thing that we predicted, right? Sorry, Mr. Reviewer. Now, if you've checked your portfolio lately, you might be feeling a little queasy because we just saw one of the wildest

[00:10:56] rides in recent history, or I think in history. The S&P is on the edge of a bear market. I think it got back into bear market territory again today. The Dow just took a brutal hit. Trillions of dollars of value just got vanished faster than you could say tariff war. So what's going on here? Firstly, the S&P dropped nearly 19% from its highs. Wow. Yeah, down. I think bear market thresholds like 20%. We try not to touch on stocks too much.

[00:11:25] Our podfathers, the Canadian Investor Podcast, do a far better job at that. But, you know, 5.8 trillion wiped out of S&P 500 companies alone. So what's causing this? Obviously tariffs. The short answer would be tariffs. The long answer would be tariffs and uncertainty and a whole lot of panic. But I think also, you know, even after Trump announced, you know, the pause, right? This 90-day pause on some of these reciprocal tariffs for other countries, they continued

[00:11:53] and jacked up China's to 125%. And stocks surged briefly on that news. But now, I think that was the biggest one-day gain since 2008. Which again, you know, think back, like the only time that you see this kind of face-ripping volatility where you see these huge drops and then huge, I guess it would be like a bear bull trap or bear market rallies, right? Only to slide again as the reality sank in. The trade war isn't slowing down. It's not. You're right.

[00:12:19] And here's the kicker, but tariffs are the main character maybe, but they're not the whole story. They're the spark, sure. But there's the kindling that's been piling up for a while that's been now fueling this fire, right? Global growth has been slowing. And let's just slash their 2025 forecast to a measly 0.5%. U.S. debt levels are at record highs with $9 trillion rolling over soon.

[00:12:45] And rising yields are making borrowing money pricier. Add in the fear that these tariffs could juice inflation, which we feel like we probably just got over, right? People are sick and tired of hearing that word. Well, it might be back. Wall Street execs are already warning about it. And suddenly the Fed, the Federal Reserve hands are now tied and traders now expect there to be three quarter point cut rate cuts in 2025 starting in June.

[00:13:14] Way less aggressive than the market had hoped for a month ago. So are we in a recession? Maybe. There's not, it's not the cushion that investors were hoping or banking on. And then of course, there is the bond market, usually a safe haven, right? That's where you go if you don't want to be a risky investor. Well, not this time.

[00:13:35] U.S. Treasuries saw a savage sell-off with 10-year bonds yields rising to 4.51% before a decent auction yesterday calmed things down. Investors were dumping bonds to cover their stock losses. And then the dollar is not even acting like a safe haven anymore either. So what is safe right now? It's the classic deleveraging move. Everyone's scrambling for cash and it seems to be shaking the whole system.

[00:14:03] You know who the one person isn't scrambling for cash, Dan? Warren Buffett has more cash. Isn't he the only guy whose net worth hasn't gone down this year? Like the only billionaire whose net worth hasn't gone down this year? Crazy. One more reason to just follow whatever Warren Buffett does, just follow what that man does because he must have seen this coming. I don't know. So yeah, I mean, he just invests on fundamentals, right? So it's different. But you mentioned the word safe haven. And I think that that's a word that often gets applied to real estate as well.

[00:14:31] And we're going to talk about that right after I summarize a couple of the key points from Rob Carrick's article. But, you know, because there's kind of, there's a bullish way of thinking about real estate as a safe haven. And then there, so there's really two ways you can look at this, right? There's the safe haven thing. Like if stocks are unsafe and bonds are unsafe, which both just happened, then what's left? If people are trying to flee the market, but don't want to put their capital just sitting there because maybe we're in an inflation scenario or something.

[00:14:57] Well, I mean, real estate ends up being, we've noticed an uptick in our audience, right? Like, you know, we're getting more listeners, which, you know, when stocks are ripping, it's hard for us to be compelling as a thing to listen to. You know what I mean? When everybody's piling into stocks and can go make all that or crypto or whatever. So the housing versus stock market impact is worth thinking about. And this is what Rob goes through, you know, while stock market declines are visible in indicators of economic stress, the housing market's health is more crucial measure of Canadian wealth.

[00:15:25] Canadians do hold more of their wealth in real estate. It's not like the U.S., right? The real estate asset concentration that I just mentioned is like 40% of Canadian total household assets down from 46% in 2022, but significantly higher than the U.S. The U.S. is at 27%. And these are from Rob's article. Yeah. That much of a difference. Crazy. And Canadians do have one of the highest exposures that they've ever had to the stock market, representing about 25% of total assets.

[00:15:55] The market psychology, I mean, we talked about it a couple of times on the show before the fear and greed index, you know, these declines create fear and anxiety. Now we're back to like, you know, back in the extreme fear category. You can see this, like when, you know, stocks are easy for you to go buy and like you're not risking a ton of money, right? You're risking like 10, $20,000 at a time, whatever, maybe less than that, you know, five, two, whatever. But if you're going to buy a house, you're committing to like a 600,000 or a 100 or 1 million

[00:16:24] or whatever, like this is a huge purchase. And so people, if people aren't buying stocks, cause they're extremely fearful, they're certainly not committing to, you know, 25 year mortgage obligations and, and, and, you know, and, you know, committing amounts of money that they've never actually seen in their lifetime. Hey, like the logic checks out as to why we've seen the market really fall. And so then there's the wealth effect piece, right? Which, which Rob mentioned, we're going to get into this.

[00:16:50] So that declining asset values could lead to a reduced consumer spending, potentially worsening economic conditions. So a more bullish key dynamic that could emerge from the current market turbulence is the potential for that flight to quality in real estate investments. And if you've been a long time listening to the show, first of all, thank you. Second of all, you've heard us talk about this before as the stock market volatility increases and returns become less predictable. And even in the bottom market, they become less predictable.

[00:17:20] Investors often go to seek more stable and an often case tangible assets, real estate, particularly in those prime locations and stable sectors being one of them. So let's talk about some of the factors that make real estate an appealing alternative. Well, again, it's a tangible asset. Unlike stocks, real estate provides a physical asset with inherent utility and relatively stable income potential through rents, right? Like you, I always make the joke, you know, why real estate versus stocks?

[00:17:49] Well, I like a bit of both, but I can't go add a basement suite to my Google stock, or I can't paint my Apple stock. So we talk about inflation a lot. Let's talk about inflation protection and how real estate has been a great hedge against that. Real estate has historically served as a hedge against inflation with property values and rents, typically adjusting upward with inflation rates.

[00:18:12] And then, of course, depending on the asset class, more quality properties with strong tenants can provide that predictable cash flow compared to the volatile stock market right now. And maybe, you know, dividends getting slashed or just changes in that market that you have zero control over. So, you know, diversification is investing one-on-one, adding real estate to your investment portfolio can help reduce the overall portfolio risk.

[00:18:39] And again, diversification within real estate, within real estate assets classes is a great idea as well. However, it is important to note that not all real estate will benefit equally from this flight to quality. Investors typically focus on kind of three main things. One, location, location, location, of course, right? Properties in established high demand areas that have strong economic fundamentals, massive key factor. The second thing, quality tenants.

[00:19:08] Dan, we always say that tenants are the real asset. So buildings leased to creditworthy tenants, whether you are in retail, commercial, or small multifamily. I don't care if it's a single family. Your tenant is your real asset. And then, of course, essential sectors, properties that are serving essential needs,

[00:19:27] like a grocery anchored retail or medical offices or even multifamily close to a hospital that services those traveling nurses and doctors. Those are the things that you should be looking out for right now. Absolutely. Absolutely. It's funny. We think about retail. One of the things you often see in retail is the use of a WALT, a weighted average lease term, or people only want looking for power centers with a certain anchor tenant,

[00:19:57] or you want your national tenants or AAAs or whatever. But we don't think about it. You don't hear people thinking about that as much in kind of the smaller cap stuff, but we really should, right? For sure. And some of the best investors I know will go and interview all the tenants and look at all the application files, et cetera. You're talking about me? Because I do that stuff. Yeah. There you go. Okay. So you kind of presented what the bull case could be if people are rushing out of stocks and trying to find something safe to put their money in.

[00:20:24] Now, as is tradition, I'm going to present the bear case. This is for our reviewer who likes my negativity a lot and wants me to continue doing it. So the bear case could be this kind of the counter argument to the flight to quality scenario, which is that market volatility and declining stock factors, or sorry, values could trigger a broader negative wealth effect that actually weakens the real estate demand rather than strengthening it.

[00:20:49] And this is kind of what Rob's alluding to, I think, which is if people are getting significant stock market declines, it could force investors to liquidate real estate holdings to cover margin calls or rebalance portfolios. And we've seen some of that live, Dan. And you and I have been part of some of those kind of cries for help from investors. Yeah. And so then that or they just have reduced investment capital, right? So we're going to read a really interesting article after this about it.

[00:21:15] But the stock market losses may decrease the pool of available capital for real estate investment, particularly affecting institutional investors. Market volatility leads to reduced consumer confidence in spending, negatively impacting both residential and commercial real estate. Right. And financial market stress often results in tighter lending standards, making it harder to finance real estate purchases. These are all things that we've been talking about and I think that are kind of more apparent in the industry right now. But I think what you'll see is probably a blend of both.

[00:21:43] You'll see smart investors actually go to the flight to quality and start buying real estate, probably because it's more depressed. And because all of those factors that I just mentioned are present and we're starting to see, you know, okay, if we see the draw, the 5% drawdown that totally Tony Stilo mentioned or the huge draw, you know, the huge risk factor that Rob's mentioning. This is like, we've been talking about this for, I don't know, the past two years, like we've been saying, there will be a 24 month buying window that's going to take place once.

[00:22:10] And obviously we didn't predict the tariffs, but we thought, you know, there was going to be a recession taking place kind of independent of them. Probably would have been a way less of a recession. Now it's probably going to be way more, but that's where these opportunities come from. And so you kind of start to see that flight to quality take place when people want to get off the roller coaster of stocks and want to ride out maybe the next five years of Trump induced volatility in a safer asset class. Right. So hit me with an article from the U S which is a very fascinating example of this.

[00:22:36] And actually some all from our pod fathers, a Canadian investor podcast sent me this because we were talking about it on a Twitter space last Friday and everybody's trying to figure out what percentage of buyers actually have their, their down payments in stocks. And they answer this question. Yeah. Wow. This, this one's kind of crazy. So a good example of, of everything you just mentioned here, Dan, uh, this is from a red fin survey. One in five home buyers expects to sell stocks to fund down payments.

[00:23:04] So one in five, that is 20% for all you mathematicians out there, prospective home buyers expect to sell stocks to fund their next down payment next door or first, I guess, down payment. When it comes to people that own homes, roughly one in eight, 13% of homeowners, uh, report selling stocks. To help fund their down payment. And one in 10, 10% of homeowners have already sold stocks to just help afford their current mortgage payments. So that's like a pretty good indication of that kind of negative wealth effect thing.

[00:23:34] And, and about, and this is high, this is like a high number of people who are actually investing their money before they put it into a down payment. And I think a lot of this is people feeling like they need to invest to like get ahead. Right. Cause like there's so much disparity. And so like they're, they want to take the risk with the capital. Whereas before you'd probably just save it and keep it in a down payment and then wait until you found a house. But in the past it was 13% of current owners or current owners right now in the past used, uh, only, sorry, only 13% of them are using stocks to kind of amplify their down payments.

[00:24:04] Obviously we're seeing hesitation as a result of this market impact. And, um, I think 68.8% of homeowners now and only 36.9% of renters on stock. So you can see that kind of disparity. And obviously when the market's going up like 50% over the last couple of years, it's that, that exacerbates that wealth disparity. The main methods that people use for, uh, for down payment sources is paycheck savings of 48%.

[00:24:31] Second jobs, which is crazy how many people are working second jobs to save for their down payment. 29%. And then stock sales, stock sales is 20, 20%. Um, I mean that, that alone is a data point, right? Second, 30% of people need second jobs to basically be able to afford a house. Very sad stat. Crazy. So yeah, the, the thought here is that, you know, stock volatility may reduce home buying from a, you know, kind of like a recessionary perspective, but it could boost real estate as a safe haven as people get more fearful of the equities market with this volatility.

[00:25:01] Crazy stuff. Okay. On to the next article here. This one is titled construction costs drop, but trade wars add risks. And this is from our friends at Altus who put out the Altus, uh, cost guide, which is a very detailed report on, um, construction costs. And according to that new report, construction costs have fallen in Toronto and Ottawa over the past year. While prices have stabilized across the rest of the country.

[00:25:32] Altus is 2025 construction costs guide cautions that this trend is favorable to construction pricing, but may face a disruption due to you guessed it, trade tensions and higher tariffs, which could trigger either cost spikes or declines. I guess, I guess, depending on what type of material you are looking at. Uh, it was released a few weeks ago back in late March.

[00:25:57] And the annual cost guide analyzes data from over 6,000 development projects worth more than $521 billion. So some serious research has gone into this. Um, and, uh, you know, Dan, I think we've covered this every year it's come out and this year is certainly different than, than prior. Yeah. And, and so the question becomes, why does this matter? So real estate, uh, investors should care about construction costs for several critical reasons.

[00:26:26] Construction costs directly impact whether new development projects are financially viable, affecting potential returns on investment of those projects, but also potential supply that could be added to the market. Understanding these costs helps you accurately assess your property value relative to the replacement cost, which is a key metric in property valuation. And construction costs also influence new housing supply. When costs rise, fewer projects move forward, potentially increasing existing property values because you have excess demand. Yeah. And for sure.

[00:26:54] And think about it for, for many ad value investors, many of you, the listeners to this show, construction costs affect the profitability of even a small renovation, let alone a large one. And of course that affects your, your strategy, your repositioning strategy, your exit strategy. So accurate construction cost data is essential for maintaining proper insurance coverage based on actual replacement values.

[00:27:19] And knowledge of these costs help investors understand price points and how to, um, you know, plan and how to, to compete and how to even add value when you're entering into a new deal into the market. So these factors have become more important during these periods of market volatility. You remember the crazy construction costs back in COVID when it didn't really make sense, you know, like to build a deck in your backyard went from being 10, 15 grand to 40, 50 grand.

[00:27:48] So when cost fluctuations, fluctuations can significantly impact your investment strategies. And then even more importantly, your returns. Yeah, exactly. Exactly.

[00:27:59] And, um, and, um, and kind of just to expand on that, like there, Peter, uh, Norman, the VP of, uh, and, and economic strategist at Altus group said in an interview that, that we pulled this, um, the article or that we pulled this article and information from was that, um, the Toronto and Ottawa have seen, um, reduced construction costs in the past year. And we're going to talk a little bit about Toronto because I know some people don't, you know, I mean, don't want us to be the center of the universe, Tony Toronto, blah, blah, blah. We get it. Trust me.

[00:28:28] We, we've traveled all around the country. And I think the only people who like Toronto is Montreal actually, which was like surprised me because I think they're so used to being hated on. But anyway, so Peter Norman mentioned that there's these two potential costs in areas. First is that a baseline trend of stabilizing or declining costs after stop softer construction volumes, which is kind of what we've been talking about a lot on the show. So, you know, that, that reviewer that we had earlier in the show mentioned how good we are at predictions. You know, we've been talking about construction costs coming down.

[00:28:54] Um, and the second is, you know, you could potentially also have an upward pressure on material costs from new tariffs that, that could offset the baseline trend. So there's kind of, it's really like a roll of the dice right now is like, which, which way do we happen? And, you know, he kind of says that, uh, that the first wave of counter tariffs don't significantly impact construction inputs, but he noted the second wave will immediately affect construction budgets through price escalate.

[00:29:17] So, you know, these trade tensions are becoming a big factor and reduced building activity in places like Toronto has helped to kind of, uh, reduce those costs. And only about 8% of Ontario's construction investment involves U S source materials limiting the overall impact. Yeah. That's interesting, right? Cause when we first, when this first happened, we were kind of like wondering what that number was and now we know, okay, it's, it kind of, there's a limited, um, overall impact. So yeah, it's much less than I expected.

[00:29:45] Yeah. And high rise has obviously seen much larger drops than commercial, which is still kind of trucking along industrial warehouses and data centers maintain more manageable costs. So they had never really saw that huge escalation. Like we saw during the condo boom, which was coupled by a construction boom, which, you know, all these, all these, uh, these, uh, slab trades, which you would call them kind of, you know, like the guys who are up in the sky working on, on slab. They, their costs went way up, right. Cause they could, they could afford to, they had a lineup of work.

[00:30:14] So anyway, while we're on Toronto, I want you to quickly read this next article heading about Toronto. And we know it, we don't really want to, we don't want to go to Toronto, but it's worth, it's worth thinking about. Cause it kind of, it can be predictive, right? For sure. Okay. So this one's from the global mail. It says, uh, Toronto area home sellers face a barrage of low ball bids. Now I know what you're thinking. Why are these guys talking so much about Toronto?

[00:30:41] Well, as Dan, you just said, we don't want to, but, uh, we kind of have to, because a lot of crazy news and a lot of crazy things are happening in the Toronto market right now. Toronto's real estate markets historically served as kind of a leading indicator for a lot of the national housing trends that we see. And of course, Dan, as you mentioned, we fly across the country, uh, hosting those meetups that we mentioned at the top of the show.

[00:31:05] And, um, we've seen the, uh, the effects of the outflow of Toronto based capital start to have an effect on these markets. It's kind of that canary in the coal mine, uh, if you will, for, for Canadian real estate. So this pattern was particularly evident following the 2023, 2024 interest rate hiking cycle. I'm sure we can all remember that, uh, where Toronto led the nationwide price corrections. Yeah.

[00:31:34] Like after the rate hikes, I guess Q1, 2022 Toronto was the first city to really see a big price declines and everybody else didn't really experience it for a couple of months or even years after. Um, but you know, during COVID similarly, like Toronto had those huge price increases and then Toronto investors were flooding out into markets like Calgary and, uh, and Halifax, et cetera. And so it really does have that, you know, it's a wealth effect to go back to that kind of wealth effect thing that we mentioned earlier. That would be a positive wealth effect.

[00:32:02] People in Toronto making a bunch of money in pre-cons. They, you know, they're too expensive. They want to go find the next city to ruin. So they do it. And, you know, the market, the market conditions, I think, you know, I think GTA consumer, uh, spending affects nationwide business. Um, it is, it's a big market. It's like a quarter of the country is in, in the greater golden horseshoe, I think, you know, and other, other market tend to follow Toronto's trends.

[00:32:26] You're seeing like the, again, pre-con went to Calgary and then seeing the CMHC MLI select deals with pretty much all Toronto investors in, in Alberta and banks also adjust their national lending kind of based on the signals that they're seeing in these core markets. Right. Yeah. Yeah, totally. I mean, the interconnected nature of Canadian real estate markets with, you know, with Toronto, maybe unfortunately at the epicenter means that the current market stress signals could predict broader economic challenges ahead for.

[00:32:56] Possibly the entire country. Now think about how all the Toronto buyers are the ones bidding up those multiplexes in Edmonton right now, Dan, for example, right? We heard about this live from people there, like literally, uh, earlier this week, Toronto's real estate market is increasingly drawing comparisons to the 1990s. And if you want more, uh, information about what happened back in the nineties and other recessions go all the way back to episode two, where we did a really deep dive into how Canadian real estate reacts to, uh, recessions.

[00:33:25] Now, greater Toronto area sales hit their lowest in, uh, March levels since 1995. Uh, that's according to Darren King, who's an economist at national bank. This follows February sales, which also reached a two decade low. Unlike the decade long slump in the nineties, today's low sales appear to be a bit more of a temporary dip driven by, you know, as we've said multiple times, market uncertain to me and negative sentiment to basically around anything having to do with,

[00:33:55] real estate or stocks or anything. Now, while buyers remain active this spring, uh, who knows many are holding back due to the trade war, the volatile stock market. And again, the upcoming federal election. Well, at the same time, sellers continue to bring new listings to that market. Yeah.

[00:34:14] So just to summarize that we saw that we basically seen the lowest sales level since 1995, continuing a trend from February where we saw, you know, for the fact it was one of the slowest February's we've ever seen. Eventually a lot of this demand will get pulled forward. But when that eventually is, we have no idea. Cause it's like, there's no indication that this turbulence is any, is ever going away. Actually, if anything, you know, we probably are just going to deal with this in 90 days now.

[00:34:40] What, you know, it's like, Oh, see y'all again, see y'all again in 90 days now that Trump's put a pause on it. So, you know, it's, it just keeps getting, and I think it, you know, it kind of makes you want to think back to like, what did the market look like in 16, 17, 18, right? Like, or a 17, 18, 19, it wasn't good. It wasn't, it wasn't horrible, but it wasn't good. And I think eventually people just, you know, accept that, Oh, this is the new normal. We're going to be in this market where it can be tweeted up and down, you know, 10 points.

[00:35:04] And those market conditions are kind of, you know, they're slowing and creating low sales due to that temporary uncertainty. But the bigger piece is that we're starting to see this increased supply. Active listings increased 88.3%. Wow. Compared to March. Yeah. Reaching the highest level since the global financial crisis.

[00:35:22] So not good signs per se, but, you know, I mean, fortunately, you know, if you're like the reviewer earlier in this episode who listens to the show, you knew that this was going to happen because we predicted it. Just like he said, we're very good at that. So let's talk about some of that increased activity and what's happening there. Because as, as the article points out, there is a ton of low ball offers. Now, of course, there are still bidding wars and there are still people that are buying and selling.

[00:35:51] And I think, I think it takes about 30 to 60 days is the kind of average transaction time. So there's still normalcy in the market, but we're seeing a lot more of those low ball offers than before. Now, again, patient sellers are still getting their achieved target price. And this is why you employ a professional such as you and your team, Dan, to come up with the right price and to make sure that you have the right people negotiating on your behalf.

[00:36:16] You know, the GTA condo sales decline of almost 10% in March from February. Active listings reaching all time record lows, particularly affecting investor owned units. We've heard so many bad stories about investors that own condos that are losing money hand over fist, which we don't like to hear. I like to hear about investors making money. Yeah, exactly. But, you know, I think the setup was pretty visible there with the condo market.

[00:36:46] And it was record highs. Active listings are at record highs for condos. Oh, my apologies. That's okay. I mean, investors returns are probably at record lows. So that makes sense. I guess. Yeah. Dyslexia got the better of me there. Yeah. So next one, kind of just to summarize all of this, Trump's tariffs are obviously weighing down on Canada's housing market. And this is an article that comes from Canadian Mortgage Professional, but they summarize an article from RBC. I'll find that. So wait, are we summarizing a summary from a summary? Something like that. Yeah. Nice. I love it.

[00:37:15] Well, we just read this stuff to put it all together and make sure we give credit where it's due. So, you know, according to a new report from RBC that was published on Monday, home resales dropped for the second consecutive month in markets across the country with Southern Ontario particularly vulnerable to this trade turbulence reaching cyclical lows. And I think that a lot of this is kind of easy to understand, right?

[00:37:34] Like in markets, in some of the markets where people like we're buying a house isn't a huge financial risk, like where you're buying something and it's like, yeah, you know, I could probably still afford this mortgage if one of us lost our job or whatever it is. Those markets haven't been impacted as badly in the markets where people are like running the margins so tight and taking on so much leverage and so much risk to buy a house. That's why they probably are like, eh, probably just going to hit the pause button on this one and see what happens.

[00:38:02] Cause in, you know, and, and so, you know, you're, you're actually Vancouver, uh, is, is actually trending up right now. Like, uh, sales, sales increased on a month over month basis, but Toronto, I mean, GTA is, is not good. So anyway, Robert Hogue, assistant chief economist at RBC noted that while the U S sparing Canada, uh, against the retaliatory tariffs and reciprocal, I don't know, there's like 50 different names for tariffs now. So, but anyway, we've been, we've dodged the bullet for 90 days. I think we still have the kind of baseline ones. I think we don't have these, the big ones that were kind of there.

[00:38:32] Um, you know, it seems like it's lifted some of the uncertainty, but a meaningful rebound seems probably pretty unlikely based on their analysis. Yeah. So let's talk about some market specifics. So nationally, um, home sales have dropped for two consecutive months across Canada with Southern Ontario, particularly affected by these trade tensions.

[00:38:52] The Toronto market, again, March resales hit the lowest level since 1998, dropping 30% since February with property values declining about $35,000, uh, over the three years. Uh, the Vancouver market home resales down 23% this year with benchmark prices reaching 1.19 million in March showing a 0.6% year over year decrease. Uh, Montreal and Calgary are both experiencing a little bit of a slowdown.

[00:39:20] Montreal experienced three consecutive months of declining sales while Calgary's resales fell about 7% between February and March. So there seems to be a bit of a shift in that market power, the market dynamics, right? Buyers now have increased bargaining power in some of these major markets as inventories grow and, uh, demand remain hesitant. So, uh, RBC expects continued downward pressure on prices, especially if trade tensions escalate further.

[00:39:47] And if we are not building new supply, which in Toronto, I know we aren't unfortunately. Yeah. So, well, but you still have a lot of new, uh, closings coming in Toronto. So like the, so. Right. I guess I'm talking a few years out. Yeah. Yeah. But, but a lot of that new supply that's, you know, like, and you're, we are seeing record purpose-built rental starts, record low, uh, detached starts actually, but record increase in purpose-built rental starts.

[00:40:13] Plus like in Toronto, you know, you have 40,000 condo units closing this year, but I think also like, I don't know. I mean, it seems like CMHC, MLI Select, housing, et cetera, uh, a lot of this is getting more rental built. So that supply could kind of hamper the ability for the market to recover. Last one here. I'm going to skip through the, um, the action plan because we're actually going to have somebody from that to come on the show to talk about it anyway. We've been in talks with them already. So nice. Last one.

[00:40:40] Will the Canada U S trade war affect industrial real estate? Key points from this article, despite being bulletproof asset class for the past decade, industrial real estate is particularly exposed to the Canada U S trade war, obviously in sectors like automotive agriculture and resources. While some industrial users are increasing storage space to kind of hedge against uncertainty. I'm sure you've heard of like Apple, like literally flying like airliners of like phones I thought that was a joke at first, but it's crazy. Yeah. It's crazy.

[00:41:09] So, you know, I mean, if, if those folks are bringing the goods over to try and do that, they would need maybe some, some storage that could be bullish for that. But the overall effective tariffs on real estate markets is expected to be negative, which may make sense. Office space may be a little bit less affected due to stable occupancy from the government, financial institutions and insurance sectors. So obviously, and it's not to say that it won't be impacted, but it'd be less impacted

[00:41:36] by a industrial, which is obviously very, it's very occupied or, or a tough financially tied to tariff impacted sectors. It's interesting. Like I've always had this thought that like, you know, if the U S is trying to repatriate all of this like blue collar work or like a factory work, but white collar work is not subject to tariffs at all. So like service work, right? Like knowledge work. And this is really interesting. I think Canada has a unique opportunity here. We have two unique opportunities.

[00:42:01] Number one is China recently said that they're going to stop exporting a lot of rare, rare minerals, which they like pretty much own the world in from a, from like a producer perspective. And Canada is really the only person, well, Canada and Russia, which like we know how that's going right now. So probably not like they're going to step up for, for at least for the Western world to be a supplier. So Canada could be a pretty good opportunity in that regard. But the other one is that, you know, in the, in the knowledge workspace, if all these U S companies, you know, U S unemployment's at like 4%.

[00:42:30] So like they need more labor, they could just start moving offices up to Canada, you know, and they can hire at way cheaper cheap, you know, reduced Canadian dollar could actually be bullish for Canadian employment. And I don't think that's like, like a actually going to happen, but it is an opportunity that we should be thinking about. Um, last piece hospitality, uh, and travel sectors. There's a, there's this thought that, you know, they could see some, some growth relative growth to these other categories. Cause I think you'll probably see a decline based on a recession, but an increase based

[00:42:59] on, you know, we're hearing a lot about Canadians choosing domestic travel over U S destinations and stuff like that. So obviously the trade war, it appears to be more than maybe just a negotiation, you know, the art of the deal that you might be hearing about. But, uh, I think that there's definitely implications happening right now that are, that are going to be far reaching in, in many different real estate sectors, which is kind of what this whole episode was about. Yeah. Uh, and on that note, thank you so much for listening. Hope you got a ton of value out of today's news episode.

[00:43:26] Uh, if you like what you heard, please leave us a review. If you don't like what you heard, go ahead and leave us one as well. Uh, we are here for all of it. Uh, thank you so much for listening and we'll see you soon. Yeah. We'll argue with you live on air, uh, even though we don't know you, if you leave us a bad review like we did today or, or we'll, or we'll fix it. We, most of the other negative reviews we've had. And even that one, I mean, you, you made me do a bull case episode like immediately after. So, you know, we'll, we'll make an honest effort to make the show better based on negative feedback.

[00:43:56] All that we would ask is that if we meet your desires that, uh, you go back and give us a updated good review if you haven't already left us. So check out realist.ca, come to one of our events, go to a meetup. We'd love to see you in our online community. The content of this podcast is for educational and informational purposes only. It is not intended as financial, legal, or investment advice. Always consult a qualified professional for advice tailored to your unique circumstances.

[00:44:20] The views expressed are those of the hosts and guests and do not necessarily reflect the opinions of affiliated organizations. Daniel Foch is a real estate broker licensed with Valerie Real Estate Inc. Website is Valerie.ca, V-A-L-E-R-Y.ca. And a member of the Canadian Real Estate Association, the Ontario Real Estate Association, and the Toronto Real Estate Board.

[00:44:44] Nick Hill is a mortgage agent and partner at OWL Mortgage License Number 10317, Agent License M21004037.