The Last Honest Realtor

Ep. 48 - Special Guest Ben Rabidoux on Toronto’s Condo Market

• Toronto Realty Group • Season 2 • Episode 19

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In this episode of The Last Honest Realtor, David Fleming sits down with special guest Ben Rabidoux—economist, housing analyst, and founder of Edge Realty Analytics—to expose the harsh truths behind Toronto’s condo market and the broader economic forces reshaping Canadian real estate.

This isn’t fear-mongering. It’s a data-backed dissection of a market facing systemic risk. From blanket appraisals and stalled closings to investor denial and government intervention, this is Canada’s “Big Short” moment—happening in real time.

If you’re a buyer, seller, developer, or policymaker: this is essential viewing.

In This Episode:

  • Why Toronto’s pre-construction condo model was always destined to fail
  • How banks are quietly pushing risky lending practices through blanket appraisals
  • What the BoC, Carney, and tariff politics really mean for housing policy
  • Why resale data hides the true structural issues in housing supply
  • How investor pullback and stalled development set the stage for a crunch in 2028
  • What policymakers can’t (or won’t) fix—and what that means for future buyers
  • Why no one wants to admit that sentiment—not just interest rates—is the real problem


Timestamps:
00:00 – Why Ben Rabidoux is this show’s version of a celebrity
03:00 – How tariffs and political games are shaping the macroeconomic outlook
10:00 – The coming housing crunch: not “if,” but “when”
18:00 – The condo crisis and Canada’s very own Big Short
26:00 – RBC’s blanket appraisals and the risk to the banking system
34:00 – Government bailouts, false optimism, and systemic denial
44:00 – What happens when 76% of buyers can’t close?
50:00 – Predictions for 2025 and beyond

If you’ve been waiting for someone to explain what’s actually going on—without spin, slogans, or sales tactics—this is the conversation you’ve been looking for.

Subscribe, comment, and share this episode with someone who still thinks “real estate only goes up.”

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SPEAKER_02:

Do you like celebrities? I don't. And that's why today on The Last Honest Realtor, it's just going to be me and my good friend, Ben Rabideau. Hello, everybody, and welcome back to the Last Honest Realtor podcast. I'm your host, David Fleming. Thank you for joining me today. All jokes aside, Ben Rabideau, he's my celebrity because he is a data nerd like me. He's the founder of Edge Analytics. He's an economist. He is regularly quoted in all things media as it pertains to real estate and the economy. He's got a pretty big following on this thing that I don't use. It's called Twitter. I think I have a Twitter account, but honestly, I don't tweet. But yeah, Ben is one of the guys that loves to comment on on all things real estate and the economy, and then have people clap back at him with nonsense, which is something I've grown accustomed to by doing this podcast. Some of the YouTube comments, I mean, I know it's not you watching this right now, but some of them are pretty crazy. So yes, Ben has agreed to join me today. I want to talk about a lot of different things. Obviously, this is a real estate podcast, but I want to talk about the intersection of real estate and the economy. Of course, we're going to have to touch on Trump and tariffs and taxes. We're going to talk about the election. We're We're going to talk about housing demand. We're going to talk about interest rates. We're going to talk about the movie that's going to be made about me and Ben. I'm going to have Christian Bale play me because he played Michael Burry in 2008 in the movie The Big Short. You're like, where are you going with this, David? Seriously, Ben and I, for 15 years, have been talking about the coming apocalypse in the pre-construction condo world where people are paying 40% premiums for something that's not built. And if the market ever were to decline, forget just being balanced and stopping. It's ridiculous acceleration of price. But what would happen? And I liken this to the mortgage-backed security crisis of 2008, where a couple of people were like, hey, everyone, look at this. No one cared. Everyone just kept buying. Everyone just kept on like there was nothing wrong. And we know what happened there. So Ben and I are going to talk about that. And in all seriousness, I have started to liken the pre-construction condo apocalypse to what happened in 2008. There's so many similarities, guys, and I will leave it to me and Ben to talk about, but I do really believe that 10 years from now, we'll be studying how condos were built because of how they were pre-sold and how they were financed and how this thing was always going to happen. Well, there, I let the cat out of the bag. Ben and I are going to talk about that. Ben and I are going to talk about predictions for the rest of the year. Some very interesting topics ahead. So I'll thank him in advance for joining me. And folks, away we go. All right, Ben, are you there? I'm here.

SPEAKER_00:

How are you doing, man?

UNKNOWN:

Good.

SPEAKER_02:

Good. How about you? Well, we were just chatting offline about that. It's tricky out there. And obviously, much of it made of the condo market. But as I said to you, the freehold market, not what it was, let's say, a couple of months ago. So probably get into that. If I could start with some stuff that maybe we could have, would have, should have covered a few months ago, the Trump and tariffs. I just, I feel like everyone out there is going to want to know your take on this. And I think we chatted a few months ago and we were like, hey, should we talk about this? And it's changing rapidly every day. Like, We've kind of come to realize that this is just sort of the way we're going to live for the next four years or longer, dot, dot, dot. Can I get your post-mortem on everything that happened a couple months ago?

SPEAKER_01:

Yeah, well, the post-mortem is, you know, it's still very much in flux. So much so that the Bank of Canada, who's, you know, one of the primary jobs is to do economic forecasting and modeling. They basically threw their hands up in the air in their latest monetary policy report. And they're like, we don't have a clue. But we'll lay out some potential scenarios. And so, you know, if you kind of defer to them on some of this, there was two main takeaways. The first is that the set of tariffs that we have in place, which is primarily related to aluminum and steel and some kind of non-compliant auto products, is effectively a non-issue. I don't mean to say that like that's going to obviously be a big issue if you're in the Hamiltons of the world or certain parts of Quebec. But from a national kind of economic perspective, it's really not an issue. They're projecting basically one quarter of flat GDP. And then we get back to the races in Q3. However, where it gets a little more problematic is if, in fact, we end up with like a like a base tariff, which is. what people were expecting them. Remember that at one point we thought that we might have a 25% base tariff. And had that come in, we would have been looking at somewhere around a four to five percentage point cumulative decline in GDP, which is about on par with what we saw during the financial crisis. So like a really meaningful impact to the economy. That's a recession, right? Oh, that is a deep recession. Yeah, that's a real problem. Now, what they're forecasting is if we end up with somewhere around like a 12% base tariff on what's called a trade weighted basis. So you kind of average across everything that we sell. They're projecting that we end up with four quarters of declining GDP, which is a recession and a cumulative kind of like one point five percentage point decline, which is certainly a recession, but is a much more muted recession than anything we've seen since the 1970s. So not disastrous. You go through a year of pretty soft growth. There definitely would be job losses. It'll cause a rethinking of how we structure the economy, but not disastrous. So we're kind of in this limbo where we're sort of waiting to see what's going to happen. But I think I'm cautiously optimistic that I would say that the The reaction to the tariffs was so extreme from a sentiment and confidence perspective that it was almost unbelievable. I think I shared this with you. The consumer confidence hit the lowest on record in March of this year. On record. So that is lower than... the initial days of the pandemic when we locked everything down and we thought half the world might die for all we know, lower than then and lower than during the financial crisis when we thought legitimately that the financial system might just break down and we'd be back to like bartering with each other. Like lower than that. Like that to me is an overreaction of the extreme. And it was the same thing on the business side. So that was an overreaction. The problem with sentiment is perception becomes reality in that as you're experiencing, once people lose confidence, they stop making big ticket purchases. Once businesses lose confidence, they stop hiring, they stop investing. So my thinking, my high level takeaway is, um, the, if we get that base tariff that somewhere in the 10% range, it's not fun, but it's manageable, right? It's, it'll be a recession, but, but a milder recession than anyone has lived through in 50 years. Um, But the impact on the sentiment and what we're feeling today with this incredibly weak consumer business confidence, that in my mind is actually the bigger driver of the economic weakness that I think we're going to see through the summer.

SPEAKER_02:

Okay. I mean, I agree with all that. I think the overreaction is what stands out to me. And I think that a lot of it just had to do with partisan politics is that And listen, I'm not a Trump fan by any stretch, but anything he was going to do was going to get the reaction, especially with all the fanfare that was coming. So, I mean, I'm like you, I guess I thought best case scenario, we have a mild reduction in GDP. People want to use the word recession. Fine. Interesting point, though, about confidence, because what I'm seeing right now, the fear of missing out that drove the market. in 2018 to 2022, let's say the condo market specifically, I always used to say like, what's more powerful, fear of missing out or fear of losing out? And right now what I'm seeing is that, you know, fortune favors the bold. We know that. But I find that first-time homebuyers, some of them, yeah, they're getting into the market. A lot of them don't want anything to do with it. But I feel like, what did Mike Myers say in Saturday Night Live? Denial ain't just a river in Egypt. These guys know right now that it's scary to buy. but they're all convincing themselves that they can buy in a year or two and pay the same price. It is complete denial. Now's the opportunity for somebody to buy a house for 1.1 that might as cost 1.2 last year. They're scared. They're not doing it. And I think that they're going to convince themselves when they do eventually buy that, you know, it's a zero sum game. But yeah, I think confidence is super low. And then that plays into thoughts about the election. Maybe we'll try not to get too political here because you and I both have a- Hey, elbows up, man. Elbows up. Okay, so the Conservatives lost. Great article that I read and wrote about on my blog in the National Post. It wasn't that Pierre blew it, as everyone said. He got exactly the votes he thought he was going to get. Jagmeet blew it because all of those votes went to the Liberals.

SPEAKER_01:

Yeah, and the Bloc as well in Quebec. Yeah, it's hard to overcome that much of an implosion. Yeah,

SPEAKER_02:

right. And so history will show that Pierre Polyev blew the biggest lead. He was up by 20 points and we all heard about it. And in the end, all of the Bloc and the NDP votes went to the Liberals and they won. So

SPEAKER_01:

here we are. Yeah, well, it was the highest share of the popular vote since Karni, or since Karni. Mulroney won his majority back in the late 80s, I believe. So it was... Hey, listen, before we get on to the election stuff, I actually want to... Can I backtrack for a moment and sort of bookend that discussion around tariffs? Because this is going to be a little bit unlike me, but I actually think this is... Long term, this is going to be a really good thing for Canada. Oh,

SPEAKER_02:

there's a bold take.

SPEAKER_01:

Yeah, no, I really do think so. So, I mean, so a couple of thoughts on the tariffs. They're forcing a fundamental realignment that's been long overdue. There's money that's just sitting on the floor in Canada that we can't pick up because no one can kind of get over themselves to pull in the right direction. So what do I mean by that? It's like we've got internal trade barriers that prohibit the free flow of goods and services across provincial boundaries. And we've known it's been an issue for decades. But the provinces just can't seem to get together and sort of like– figure out a way to just agree on some common principles. And if they were to do that, there's evidence that that alone could add somewhere on the order of$200 billion to Canada's GDP. You're talking about like a 7%, 8% hit. So on one hand, when I say hit, I mean an increase, a boost of 7%, 8% just from reducing those internal frictions. So on one hand, we're fretting over like this potential kind of one and a half, percentage point decline in GDP if we get a 10% base tariff. And meanwhile, there's free money on the ground that's the equivalent of somewhere like 7%, 8% of GDP. I think that's... When we rewrite this... If the provinces can coalesce and get together on this, this is a net benefit for Canada because it's sort of forced us into action. The second thing it's going to do is for the first time in my life anyways, you're seeing like broad support for trying to broaden our export base, particularly related to the energy sector. But this is the first time we're seeing some agreement that, yeah, we need to diversify. We need to get pipelines built. We need LNG. There actually is a business case, it turns out, for LNG. Like all this stuff that I think in time, there is a chance. I think a pretty good chance that we will look back on this as being the catalyst that forced the change that we could never seem to get the incentive to do ourselves.

SPEAKER_02:

But isn't that sad? Somebody watching this right now probably is happy that we banned plastic straws. I don't care. I will go on. I'll put my thoughts out there. I don't care. But as far as the just kind of patheticness, if that's a word, of the fact that in order for us as a country to get our act together, we needed chaos. We needed Donald Trump to come and blow up. So you're saying now we're going to get our act together. You said decades, internal trade barriers, money on the floor. And don't even get me started about the fact that we could be so self-sufficient from natural resources, but you have this large population of the country that believes that we are responsible to solve everything Global climate change. So we'll just stop. We'll just stop with our natural resources and then we can import it from other countries, become self-reliant on them. Honestly, I'm 44, man. I get it. I'm in sales. People could watch this, hate it. They could see my comments on Toronto Realty blog. I don't care anymore. I get it. Some people are highly concerned about climate change and the earth. I'm a realist. I'm a realist. I cannot believe what we have done. We have so many natural resources in this country and we're shutting it all down. We've got– what's his name? Steven– Bilbo. Right. Doesn't want to build any new roads. Doesn't want to build any new roads. This is what we're doing as a country. And I don't– it's from Trudeau. I get it. Sorry. I said I wasn't going to go off on blast. But like see, you hit– I was pretty calm until you mentioned that.

SPEAKER_01:

But I'm saying it's going to be a good thing. And what I guess I'm trying to get at is like I think we're finally at the point where people want to be pragmatic around some of this stuff.

SPEAKER_00:

No.

SPEAKER_01:

No. Yeah, I know. And I'm cautiously optimistic. I was deeply skeptical about Carney around some of his prior work on values and the push for net zero and all the stuff that he seems to have abandoned because it's politically expedient. But we'll see. But it does feel like there's more of a pragmatic approach. I mean, you're finally getting to the recognition where everyone goes, hey, wait a minute. there's massive demand for LNG globally. And if we can get our LNG to some of these countries, you know, first, second world countries that are still primarily reliant on coal, and that switch over from coal to natural gas is relatively seamless. And if we just did that and got some countries away from coal and towards LNG, we will offset more carbon than Canada can ever produce, right? So it's like from a global perspective, it makes enormous sense to get that demand LNG to international markets, and it ends up being a net benefit for our economy. So like, what are we doing? So finally, I feel like, you know, we're getting progress on that.

SPEAKER_02:

I mean, I'm going to stop there because if I. Yeah, I

SPEAKER_01:

agree. I agree. Let's

SPEAKER_02:

get let's get into housing. If I talk anymore, I'm going to sound like an anti climate change zealot or something like that. No, I think it's important. I just think pragmatic is the word you use. And it's like maybe we shouldn't be throwing cans of paint at the Mona Lisa and protest of global climate change. Like, OK, so let me go back to the elections here. Like we've got Mark Carney. Fine. It is what it is. I think Pierre had some ideas. The other candidates had ideas, but none of them matter because they never had a hope. I don't know why. the Green Party even advances a platform. I'd love to know what would the Green Party do to advance the Canadian economy? So what are the implications, the high level, big implications, especially as it pertains to housing? I'm a cynic of the mindset that the public sector is so incredibly inefficient. If you gave the public sector a dollar and it went through the filter of government, they're going to crap out 30 cents. So the government wants to build housing. We want to get back to the 1950s. Where is this headed?

SPEAKER_01:

Yeah. Okay. So a few high-level takeaways. So, okay. All else equal. So you're not going to agree with me at all. I'd first pass, but hear me out. A party government is going to be better for economic growth in the near term because they're willing to run larger deficits. And deficits are stimulatory in the near term. They just are. You can't get around it. What about the

SPEAKER_02:

ones that go on forever in

SPEAKER_01:

perpetuity? Well, that's a separate discussion. The longer term implications is a different discussion. But if we're talking about the next year or two. Yeah. Look, Polly Everett, there was a chance we could be looking at something like a Doge Light, like a Doge North, which arguably is overdue because the share of the public sector as a percentage of the total labor force is the highest it's been in 30 or 40 years. So you could certainly make the argument that. We need to trim things up. That likely would have happened under Polly Everett. Now, the problem with that, the problem, as it were, is that that is a constraint on growth in the near term. Over the long term, it's a different discussion. A Carney government is definitely more pro-growth in the near term, without question. The flip side to that is that it also means that rates are going to stay slightly higher under Carney than it would have under Polly Everett because the government, in an economic downturn like we're likely facing, a Carney government will be more willing to underpin growth through spending than a conservative government might have been. And so that gives leeway to the Bank of Canada or it relieves them from the obligation of trying to underpin the economy through lower rates. So all else equal, you're going to get slightly higher growth, slightly higher rates under Carney. I know you're going to disagree. I'm just telling you in the short term. To me, that's a no-brainer. You're also going to get slightly stronger population growth, I think. I think there was the potential that a conservative government would have a really tight in the tabs. We can debate whether that's a good or bad thing. I personally think we need to, you know, a bit of an overhaul on our, on the way we've thought about immigration over the last few years. Yeah. Around the specifically like incentivizing new construction, I think they were broadly similar. Like I would argue that the liberal platform kind of just waited for what the conservative was going to say. And then they kind of like, oh, yeah, we like that, which whatever to their credit, that's how the game is played. You find the policies that are popular and you adopt them. And so I don't think there's much different from that perspective. The only other thing I would say is I do think that. There was a chance that under a conservative government, they may have sort of rolled back some of the changes under CMHC that we saw under the last government with regards to a million and a half insurance cap on purchases. I just got the sense that that was something that they maybe were not super... super big fans of. And I could have seen a scenario where that was back on the table for being rolled back. And that's clearly not going to be the case in the current. So I think all else equal, it's probably slightly better for growth, slightly better for housing over the near term. I think over the longer term, I was a big Pierre fan. I know personally, I was pulling for him hard. I thought he had a better platform for the longer term, but

SPEAKER_02:

that's where we are. So, okay. As it pertains to housing, We keep hearing everyone wants to talk about building housing. So again, I go back 10 years, and I feel like I don't want to toot my own horn, but I was ahead of maybe a couple of things. The demand, that's all the CMHC ever looked at was demand. Everything to, quote, cool the housing market was, let's increase CMHC premiums. Let's increase down payment minimums. Let's, right across the board, make it more difficult for people to buy, because if we can eliminate demand, then we can stop housing prices. I started saying 10, 15 years ago, what about the other half supply? Five years ago, maybe four, three. I don't know. It's been very recent. The government has finally started to talk about supply. And now it's all they talk about to the point where I think it's absolute nonsense. I want to get your thoughts on what can the federal government actually do to increase supply? And because we know that the bottleneck is at the municipal level, and I've told so many stories, both off camera and You know, things I can't really mention about local city councilors shutting down developments because their residents don't want it. The bottleneck is at the municipal level. We've heard about the government, quote, working with the municipalities, and we've also heard ideas on how to punish them. What do you think the government can do to get housing built and how can they work with municipalities and maybe the province? Because Doug Ford wants to build, like Dr. Evil, a billion houses.

SPEAKER_01:

Yeah, they were sort of in broad agreement that there was sort of underutilized federal lands that could be turned over to development. And so that was kind of across party lines. That's going to move the needle a little bit. Like, you know, with this housing thing, there's no silver bullet, right? It's just going to be a lot of targeted, smaller measures that over time are going to move the needle. So like that's one you can say, okay, yeah, that's going to be a little. I agree with you 100%. The issues at the municipal level, the feds have got to find a way to incentivize municipalities to become more pro-development. And they've had different approaches to it, but in general, the approach has sort of fallen along the lines of like, you know, sticks and carrots. And with the idea being that, you know, we're going to try to tie various forms of funding to targets around development. Like, It's hard to know. I think at least I'm encouraged that they recognize that that is the pinch point. And they're sort of trying to figure out how to get municipalities to pull in that direction. And so, you know, the Kearney government promised they were going to cut municipal development charges in half. But how

SPEAKER_02:

can the federal government stop the municipality from charging what they want?

SPEAKER_01:

Well, I don't know. I don't know. We're going to get more of these details in the next budget, but I could see, I don't know whether it's going to be some sort of literally just like a slush fund where they offset some of the lost. Like, I don't know what it's going to look like. But. No one wants to say it in Canada, but the reality is that property taxes are relatively, everyone's going to hate this and I get shit on every time I say it, but just pull up the mill rates in any US city and in any European city and compare it to Canadian cities, especially like the Vancouver's and the Toronto's and everyone goes, Mike, my property taxes are super high. Yeah, they're high on an absolute basis, but in terms of the mill rate percentage, they're not high. They're not high. Toronto's the lowest of anywhere. It's crazy low. And so the idea that we are subsidizing existing owners by keeping property taxes low and then putting that tax burden on new development is completely ass backwards. And all that you're doing is you're enriching the incumbents who already own those assets. And that's fucked up. And we got to figure out a way to change that taxing dynamic. But good luck getting elected on that platform.

SPEAKER_02:

No, but it's the same thing with, I don't want to move on from that point, but the comments last week from Gregor Robertson saying that we can't allow home prices to fall. My argument on my blog was, why would anyone be surprised by this? The liberals were elected by seniors who own houses, who have the biggest share of equity of anybody in the planet. Why did anyone think they were going to let or force home prices to fall? But I'd be remiss if I didn't circle back and say that, well, yes, our property taxes are low. We're taxed to death on everything else. I can't buy a TV without being charged an environmental fee, making the assumption I'm getting rid of an old TV. 53% in taxes. And when you said slush fund earlier, you know me when it comes to economics. I think that the average person doesn't understand. Free is not free. Free dental care, free daycare, free everything. It's not free. It's paid for by tax dollars. So when there's a quote slush fund, it's made up of tax dollars. The government can't subsidize everything. I remain convinced that 90% of people. I don't even want to label, you know, Gen Z or what have you. 90% of people don't understand, quote, the government can't just go and pay for stuff. It comes from tax dollars. So, you know, what's the solution? I mean, stop spending money. Stop spending money on stupid stuff. Be more efficient. Have fewer government jobs. 100%

SPEAKER_01:

agree. I'm not in favor of... Listen, I'm not... I paid taxes like everybody else. I have zero interest to see my taxes go up. But if we're talking about somehow finding a more equitable way to redistribute it, the idea of having your current incumbents sitting on massive piles of housing equity, including myself, I count myself among that group, that somehow we're passing that burden onto the younger generation that's trying to get into the market, it's just not right. So listen, I'm not an advocate for higher taxation. We waste so much money at the federal level. It's insane. And so I'm completely in favor of seeing a rethinking of our spending first such that we can get some of those taxes lower and incentivize development.

SPEAKER_02:

So then where are you seeing housing supply? We've talked a lot about housing starts, pre-construction, which we'll get into in a moment because that's a sexy topic. But in terms of know resale obviously we know the absorption rate is near all-time lows i believe in the condo market last uh where i look in the condo market so specifically c1 c8 um you know rental market is soft absorption rates lower gta and 905 condo market absorption rates at like 25 so anything less than 50 people know signals a buyer's market we're at 25 the absorption rate in the overall market is hovering around 30. so resale Okay, it looks like there's such little demand that the supply is fine, but new housing. I don't have those stats. I always go to you for that. Where are we on housing starts and housing completions?

SPEAKER_01:

Yeah, it's this weird time. It almost feels like that kind of Wile E. Coyote moment where the coyote's gone over the edge, right? And the coyote being... home, like new, new housing construction. Yeah. But the resale market still looks very well supplied. And so it's this weird dynamic. I agree with you. Like, if you look at something just to frame it for the listeners, so something like the sales to new listings ratio, which you refer to as absorption. So just a simple measure of supply and demand. We're at levels currently that we have not seen since the early 1990s. Yeah. Now that's lower than during COVID. That's lower than during the financial crisis. So like, you're right. This is a, this is just an absurdly weak market. Yeah. The problem, and so because of that, you're getting an accumulation of inventory and it looks like the market's well supplied. What I'm a little bit concerned about is when I look at the trend in new construction. So I'll use, for example, single family building permits. Of course, you have to get a permit from the municipality before you can start construction. So it's a pretty good leading indicator for where development and construction activity is going. Permits are at 40-year lows in Ontario. If you just look at them on like a 12-month rolling basis, we have not been this low since the 80s. And in BC, we have no precedent. Like we have data going back to 1980. It's never been this low. That's single family. And so I think you could get into a situation. I wouldn't be shocked if a year from now, the single family market is definitively improving. Sales are probably still going to be weak, but better than currently, but the inventory might start to really normalize come next year. Little different situation in the condo market. There's still a lot of new supply still to come. If you look at what's currently under construction, we've got two, we probably have one more year of record high deliveries, and then they start to kind of taper off once you get kind of towards the back half of 26. Where it gets interesting, though, is if you look at new condo sales. And here I'm leaning on data from, I think it's Altus. It's reported by Build, which is the industry group. And on a 12-month rolling basis, we've only seen 3,600 new condos sold in the last 12 months. So there's this great chart where if you look at condo starts versus sales, new condo sales starts lag by about 18 months, which makes sense because developers have to pre-sell units, go get their financing, start building. And that's about an 18, 12, 18 month process. So in other words, with new condo sales running at sub 4,000, you can pretty much pencil in that 18 months from now, condo starts will be in that same range. Now, just for context, you know, at peak two years ago, we were looking at 36, 37,000 new condo sales. So we're talking about like a 90 plus percent reduction. Now you roll that forward further. So we're talking 18 months from now starts will be down sub 4,000. Roll that forward a couple more years. Now you're getting into like 28, 29, maybe even into 2030. That's going to be the level of completions in the new condo market. So we're going to be looking at sub 4,000 completions. Now for context, Even in a really weak market like we have currently, we've still had like 16,000, 17,000 condo sales in the resale market in the last 12 months in Toronto. So you can kind of get a sense of the discrepancy there between future supply. Now, there's not a story for a couple of years, but that future supply being dramatically curtailed. such that I think that market's going to be quite undersupplied. But that's not going to be a story for at least three or four years. The market's going to recover before that, right? But I wouldn't be surprised if a year from now, like I said, I think the single family market next year at this time would probably be firmer, I think almost certainly. I would not be surprised if the condo market still looks really soft. I think you've got another at least year or 18 months where this market the direction for condo prices is probably down. And the big unknown in all this is going to be the employment situation. If the wheels come off in employment, then that's really going to drive for sales and you could really start to see prices come under pressure. But barring that, I think, you know, if we get just the kind of run of the mill, modest recession, a couple quarters, you know, and we're back to job growth by the end of the year type thing, I think by spring of next year, the single family market is going to look quite a bit different.

SPEAKER_02:

And so it's just speaking of sales. So we're talking about obviously housing supply, the other half of that sales. I made a lot in 2023 of the fact that I always say of all time, here's where it gets tricky. The stats for Treb start at 2002. And my argument is also, well, hey, the city was half the size in 1999. So when I say of all time on my blog, 2023 lowest sales of all time, they were a little more than half of the peak in 2021. So you had around 122,000 sales in Treb And that went down to about 67,000. Last year, 2024, was moderately more than 2023. So we're talking 66,000, 67,000 sales. I came into this year, I ran this contest on Toronto Realty Blog, prediction-based. I had like 40 people submit, which was great. The average number of sales, which was one of the questions, right? The average prediction among 30-something-odd readers was around 78,000. We're all going to be wrong. I think we are going to see... less than 60,000 sales this year, which is mind-blowing. And so I've run the data basically through April, which is only four months, but grading on a curve to previous cycles, if you look at where we are, Jan, Feb, March, April, as an average in relation to kind of a rolling average of the last few years, I'm looking at 57,000 to 58,000 sales, which is Crazy to me, not just the lowest of all time, but way, way below what we saw in 2023, 2024. So, I mean, I've kind of answered this, you know, and obviously I'm the one that's selling real estate out there, but like, why do you think we're seeing fewer sales? I mean, interest rates are being cut. Like, what is it? Is it panic? Is it media? Like, what's your view on that?

SPEAKER_01:

Well, so, I mean, I look at it, so I generally look at the same data you're looking at. So when I look at sales on a per capita basis, We are at the lows that we haven't seen in 30 years. So you're right. Sales are just unbelievably low and have been now for a couple of years. Now, you got to remember that coming out of COVID, we went through a two year period where they're exceptionally high. So some of that weakness we've seen is sort of a payback from where we clearly pulled some demand forward. But we're way beyond that now. Like we're to the point now where sales have been so low for so long that we're clearly there's an element of pent up demand building. And it's hard to know what's going to get that to unleash. So I have a view that I actually think home sales adjusted for seasonality probably bottomed in Q1. Wow. Yeah. And so and the reason for that is so you look at. OK, so let's let's talk affordability. I think everyone knows what housing is really unaffordable. That's we get that. OK. So if I look at something like, okay, so a simple calculation I do is, okay, let's take the typical house in Toronto and you use something like the house price index benchmark price, just as a proxy, okay? And you do a simple analysis of like, well, what's my monthly mortgage payment if I buy that house, finance an 80% loan to value at current rates? What's my monthly mortgage payment? And so you saw from kind of 2016 to 2020, it was actually surprisingly flat, right? that as house prices were going up, it was being offset by falling rates. Then, of course, pandemic hit, and then we had this insane run-up in prices coming out of the pandemic, and then rates started going up. And so it looks like a hockey stick, but it's rolled back over quite a bit. And what's interesting is where rates are currently, the monthly mortgage payment is back to levels that we last saw in the first quarter of 2022. And if the Bank of Canada cuts one more time in June, which I think is... Right now, markets are saying kind of 30% odds, but I think it's probably higher than that. I'm expecting a cut in June. That'll put us back to levels that we were at in the fourth quarter of 2021. Now, for context, sales in the fourth quarter of 2021 were 50% higher than currently, 5-0.

SPEAKER_02:

That was the record year, 2021.

SPEAKER_01:

Yeah, well, even you go into the first quarter of 2022. Yeah. We're still talking 15, 20, 25% higher than currently. So it's not that affordability, like affordability was shitty back then. It's still shitty today. But sales were dramatically higher back then than they are today. So what is it? Well, I think there's two things driving it. The first is, which we discussed, is confidence. You need confidence to come back. Now, one thing to note is in the last three weeks, we've seen a dramatic rebound in the weekly confidence readings. In fact, it's the steepest three-week increase we've seen since coming out of the lockdowns and COVID. So we're seeing sentiment is improving. I think that will start to translate into slightly higher sales. But we're not getting back to those highs from 2021 and early 2022 because the investor market is dead, as you know. The investors were 30% to 40% of the buying pool. back in 2021, 2022. They basically round to zero today. And of course, why wouldn't they when you've got you know, the rental market is pretty soft. Prices are going against you. Cap rates still don't, like it's really hard to carry unless you're willing to put a lot down. So it's still, from an investor perspective, it still doesn't make sense. And so I think you will see end users start to re-engage. And so there will be an upward drift in sales through the year, but we're not getting anywhere close to being back to those key levels for, or those highs for a couple of years because you need those investors to re-engage. And that's going to be a long process, I think.

UNKNOWN:

Yeah.

SPEAKER_02:

Okay, yeah, I mean, that's, I think it all goes back to the confidence. That's what I'm feeling out there. Like I said, don't want to sound repetitive, but the fear of missing out drove the market a few years ago and people are just so afraid. I've had a few people reach out. I had an investor reach out, a guy I've been talking to off and on for years. He said, you know, what's happening with condo prices? He said, can I get a two bedroom for under 500K? And I was like, no, I mean, if you want to go to Joe Schuster Way, not the best building, forget about, you know, Abel and Lisgar, the people that are from Toronto know what I'm talking about. And I said, yeah, you know, maybe around 500. And he said, you know what? I think it's going to drop further. I'll reach out in six months. So, yeah, listen, if you're a long-term investor and you're looking for 20 years, I don't know that it matters whether it's today or six months from now. But I feel like the sentiment out there, even among the investors and specifically with the end users, like imagine being a 25-year-old and you're thinking about, okay, I've been in my job at a law firm for three years. I'm going to go buy a downtown condo. You are scared beyond belief that if you go buy something for 520 that was trading for 640 in 2022, well, you're going to look like an idiot because your cubicle mate is going to pay 470 for the same thing. So I would remind people, I don't want to sound salesy, but it's an investment. Yeah, but you're still living there. So if you want to move out with your parents, you know, or get out of the rental or whatever it is, or you want to buy that really great condo in King West with your nice terrace. Now I'm really selling it. But, you know, I think people get too involved in the investment aspect when, of course, it is for, you know, for use. So, okay, let's segue into, because I think this could potentially be a long conversation. Actually, you know what? You know what I'm going to open with? Okay. You know what I'm going to open with is a yes, no question. Okay. Do you ever wake up in the morning and think, my God, are David Fleming and I just like Michael Burry was in 2008?

SPEAKER_01:

You're looking for a yes, no answer? That's never, that particular thought has never crossed my mind. I definitely, I mean, I've been, as you know, like you and I have had this discussion for years, bearish and way early, and now I find that I'm probably kind of like, well... I don't know how much worse it's going to get. I think there's going to be a bit of a downward grind in pricing from here. But you really need the wheels to come off in the economy to get it, I think, to really grind dramatically lower. I

SPEAKER_02:

mean, my reference was with the pre-construction. Oh, that's a shit show. Oh, yeah,

SPEAKER_01:

man. That's what I mean by me and you being Michael Burry.

SPEAKER_02:

For the people that don't know, Michael Burry, of course, played by Christian Bale in The Big Short, was the person that saw the financial crisis of 2008 happening. Mortgage-backed securities, they're junk, they're going to fail. And he sounded the alarm, and everyone just kept buying and trading. Me and you, for 10 years, have been warning people about pre-construction. That part's a disaster.

SPEAKER_01:

Yeah, yeah. And kudos to you. Kudos to you, because you, I think, were the first person to articulate this whole concept of this growing gap. this growing premium, I should say, between the new condo market and the resale market, you're the first person to flag that. And at the time, it was relatively modest. It was whatever, 10%. And then it blew out to these crazy levels in kind of 20, 21, 22 to like 20, 30%. And that's the vintage that's completing now. And it's just so dramatically offside. And people are just so screwed on those. It's brutal. But one day, they're going to make a movie.

SPEAKER_02:

And I'm wondering who's going to play me and you.

SPEAKER_01:

Oh, yeah, yeah, yeah.

SPEAKER_02:

Because I forget who played the other. There was Michael. Anyways, I'm the weirdo. So it'll probably like the Christian Bale, Michael Burry character. But it was Steve Carell that played

SPEAKER_01:

Isman.

SPEAKER_02:

So jokes aside, you know, for those people that haven't been following us for that long. Look, once upon a time, pre-construction prices were lower than resale, which made sense because you're taking on a risk. You're buying an unknown. You're waiting for something to be delivered. And that made sense. And then Prices drew even. And that's when I said, why would anyone buy pre-construction? This is absolutely crazy. Then prices went up. You're paying more for something that could be canceled, could have major deficiencies. There could be material changes. The elevator directly into the subway that they promised, they just didn't do it. The rooftop pool, nope, they didn't do it. There's so many issues with it. Or just prices go flat for a few years. And that's the crazy thing is that when we started to see a 10% premium for... New construction, it made no sense. When the premium is 40%, and let's use some numbers here, Ben, you're paying$1,800 a foot in pre-construction. Resale next door is$1,200 a foot. I'm saying, why would anyone do that? And everyone's telling me, shut up. I'm getting blasted on every social media by every new condo agent. And I'm getting absolutely torn apart. And then it's like, forget if prices come down. If they just stay flat, you're screwed when this thing's finished. Now prices have come down. You paid$1,800 a foot. It was worth 1200 on the resale market next door. Now it's a thousand. Me and you were calling this for years. It's fucking

SPEAKER_01:

nuts, man.

SPEAKER_02:

And

SPEAKER_01:

here we are. Like the stupidity of that. So like you think, okay, what if you just go back to a normal market where you get four or 5%, three, four or 5% appreciation, which is a good market. Right. So if you, you know, if you, if you got a four or five year construction timeline, you get in 4% price appreciation. Like, so maybe you get 20%. Yeah. Your deposit's gone. Like you've just lost your deposit in a normal market. I don't know what people were thinking, but it's shocking to me how many people kind of drank that Kool-Aid. Everyone thought they'd be able to assign it. and not have to close. And now we're finding that market is completely frozen.

SPEAKER_02:

Welcome back, guys. So we just had a technical glitch there, but Ben, let's continue this conversation about pre-cons. So me and you were basically going on about how great we are and we all saw this coming. I think the other conversation here, which we wrote about on the blog, I say we, I chatted with you and some other folks, the blanket mortgage appraisals that are coming through. And so in layman's terms, guys, you pay 700 for a pre-con and you get an approval at the time. Now that thing's worth 550 because the market's dropped and it was never worth 700. But guess what? RBC gave the whole building a blanket appraisal for 700. So Ben, to me, this is either the worst thing I've ever heard, which I like, and I'm going back to Michael Burry. S&Ps and Moody's continue to grade all these mortgage-backed securities AAA because what? They were afraid that they would go somewhere else. If RBC is going to give blanket mortgage appraisals, they're going to basically circumvent the bank act. They're going to tell people this is worth 700 and it's worth 500. And then they're going to have a loan based on that. And they're going to screw their shareholders to publicly traded company. This to me is yet another example of how the mortgage-backed security crisis in the United States will over time be likened to the pre-construction condo crisis here in Toronto.

SPEAKER_01:

Yeah, look, I think it's a terrible idea. I'm not a fan of these. I understand in principle what they're trying to get at through that, trying to provide stability for pre-construction buyers and all this. I think they're really playing with fire. I think you touched on two really important points. The first is that we have a bank act in Canada that has served Canadians tremendously well through multiple crises precisely because we insist on certain things like If a bank is going to make a residential mortgage loan and it's not insured. Yeah. it can't be more than 80% loan to value. And so consequently, when we get into times of kind of economic turmoil, our banks generally have done very well compared to global peers. You're kind of screwing with that. I don't think Canadians should be comfortable with that. The wording of the Bank Act is tremendously clear. You cannot make a loan that is not insured for more than 80% loan to value. Clearly, that's what these banks are doing. Now, they're then representing to their shareholders and regulators that this is not an 80% LTV loan, but that's bullshit. We know that's bullshit. Where I think it becomes problematic, if we rewind, you remember the case, remember the whole fiasco with Home Capital Group and the whole mortgage fraud thing? It ended up that they never really took losses on those loans. But what happened was people lost confidence in that particular company, in management. They no longer believed that they were being told the truth. And what I worry about with these Canadian banks, because they are priced relatively high globally compared to global peers. One of the reasons for that is they are viewed as being these extremely trustworthy institutions. But I worry that when they are making representations to their investors that their uninsured loan book is on average 60% loan to value or something like that. you know, if it starts coming out that actually they've got these loans on their book that they're representing it being 80% loan to value, but in reality, they're like 100, 110%. Yeah. I just don't know that that's going to sit well with investors. And, you know, investors can vote with their feet. And when you're dealing with a levered entity like a bank that's reliant on funding from investors, you know, I just don't think you want to be playing with that game. It's not in the best interest of Canadians. And I just think that whole process... The other thing that's just striking to me is we have not gotten clarity from OSFI, the bank regulator, on their stance on this. And every chance I get, I'm like CCing them on Twitter. Like, hey guys, can we get your official take on this? And they're not saying anything. So... You at least need to get the view of the banking regulator of like, well, how are you going to handle this? How are you going to provision against that? What are we going to allow? Is this a temporary thing? We just need some clarity because this is a crazy act to see from a Canadian institution. And is it just RBC that you know of? I know RBC is doing it. No, there's a couple of them that are doing it. RBC is sort of the big one, but there's a couple of them that are doing it. They're the ones that are out there publicly. It's in their advertising material online. So it's like it's very much out there, but they're not the only one that's doing it. There's a couple others.

SPEAKER_02:

Yeah, it frustrates me because, you know, again, I'm going to go back to the government. I should put my tinfoil hat on here. But I feel like in Canada, let's be honest, we are extremely socialist and there's a role of government that's taken on a new meaning. And I feel that the solution to everything is for the government to bail people out. So I wrote on my blog the other day, when Trump tariffs were announced, Trudeau stood up and he said, don't worry, we will make everyone whole, which again, I would say you can't. You're making it whole with tax dollars, which are supposed to pay for things like schools, which suck, and medical, which sucks, et cetera. But point being that if The idea here is we can't let these people lose money, so we have to circumvent the Bank Act to, quote, make them whole once again. Then what are we really doing as a country? No one's allowed to make mistakes. No one's allowed to lose. No one's going to be responsible. And one of the quotes in one of the newspapers that I basically pulled seven articles about Gregor Robertson's comments last week. And you get the Toronto Star saying, of course, we have to allow home prices to fall. One of the authors said something about how we need to make home prices fall, but we also need to protect any of the buyers that are affected. And I'm like, how can you do both? You're saying that home prices are going to fall, but you're going to make sure that there's a safety net. And then it would be what? Young people or disadvantaged people, financially disadvantaged. You can't have it both ways. But

SPEAKER_01:

I can tell you what I think is going to happen. Yeah. I think that this whole pre-construction condo issue is enough of an issue for the banking sector.

UNKNOWN:

Yeah.

SPEAKER_01:

Um, this whole, you know, inability to close, like we're going to get a point. I think this summer we could see a big development where they have more than half of the buyers potentially. It's already happened. And this is also, but this is the thing. So then how do you, you can't form a condo corporation.

SPEAKER_02:

No. So there is a development which shall remain nameless. I have this in authority from a builder told me about another builder on, on, on the day that, you know, registration and everyone's supposed to line up with their lawyers and close 76% of buyers. either refused or couldn't close. What happens there?

SPEAKER_01:

So, okay, that's fascinating. So this is what I've been waiting for. I'll give you offline, I'll give you this. Please, please, I want those juicy ideas. I love it how developers are always willing to like throw everyone else under the bus. Everyone's like, well, they're having problems. We're not seeing it, but I've heard these guys. And then you go talk to those guys and you're like, well, actually these people over here, it's kind of this funny game. Here's what I think is going to have to happen because I do think this is a big enough of an issue. And again, David, I'm not saying this is what I think is the right approach, but if you put yourselves in the hats of the government, you know they're going to try to do something. So what will they likely do is I think you will see an inventory loan management scheme, probably backstopped by CMHC, a zero interest inventory management loan where the developers can take on this financing that allows them to repay their development lenders so that banks don't have to take huge provisions on these massive development loans. And then that allows the developers to sort of trickle the release of those units into the market so as to not like crush the value of their own properties. And I don't know there's any way around that. So, you know, I think that's what's ultimately going to be the solution here. And I'm no fan of that. But, you know, we've seen this playbook before and you know that, you know, there's that saying, it's like, hey, I'm from the government and I'm here to help. Like, you know, that's what they're going through. They're going to do something like that, Dave.

SPEAKER_02:

Well, I was going to say that the benefit of this is that if we try really hard, we could probably create another 10,000 government jobs here. You know, like we could create a whole wing. I mean, I think the solution, you know, the government's taken over, you know, let's see, alcohol, cigarettes, cannabis, they should just take over real estate. They should just oversee all building, all sales, all purchases. They should just take over absolutely every aspect of our lives here. So, yeah, I figured that's going to be the solution is the government needs to step in. But, you know, in fairness, I don't actually have another suggestion other than to let it all implode. But, you know, they're not going to do, David. I know. Well, it's real estate is too big to fail. And that's why, you know, you're not wrong. But among other reasons, for the last, like, you know, here, 2004, I got into the business, okay? So in 2004, people are calling for the collapse. And I've written about this on my blog so many times. 04, the collapse. 05, 06, right? We get Garth Turner. We get all these people. Hilliard McBeth, the collapse, the collapse. And all along, I've been saying... it's too big to fail. The entire country would implode because CMHC is backstopping the banks because of the equity that seniors have in their homes. It's a tax recap. This system, you could say it's rigged, but I've been saying this all along. I feel bad for the guy in 08, read Garth Turner's book, and he's like, yeah, I'm waiting for the 80% collapse and now prices have tripled.

SPEAKER_01:

Well, okay, but I think you've got to define what fail means, right? So when you say it's too big to fail, what I would say is, we've now seen a price decline from peak of 18% nationally.

SPEAKER_00:

Yeah.

SPEAKER_01:

And that's 29. That's yeah. Almost 30% in real terms. Yeah. Man, that's a pretty big fucking drop. Now, you know, after a 20 year bull run. Right. Sure. Sure. But but eventually like so I you know, I don't know. It's not like we're not living through the midst of a historic downturn in prices off a peak already. Like we are. This is the worst downturn that we've seen in 2017. And during the financial crisis, it's actually worse decline nationally than we saw in the early 90s. That was primarily like a Toronto, Southern Ontario phenomenon. The rest of the country was probably, was mostly fine. And today we're seeing real pockets of issues around the country, but most, like to be fair, mostly Ontario and BC. But this is a real drop, man. Like, I don't know what, you know, too big to, I don't know what fail means, but a 20% drop off peak, a 30% decline in real terms is not nothing.

SPEAKER_02:

No, and I would say that, not to minimize what happened in the 90s, but on relative terms as a percentage, sure, we're past that. But if the average home price went from$190,000 to$160,000, yeah, it's a lot. But now you're seeing people lose. I mean, look, I've had somebody who didn't buy through me. They paid$1,480,000 for a house. And when I went and met them last year, I was like, guys, this is a 1-4 house. And they were aghast. And you factor in their land transfer fees and their real estate fees. These guys took$150,000 loss. Now, mind you, they bought another property outside the city, which they got for a pittance. But we are seeing real losses here. And so you go back to the articles in the Toronto Star about this sad sack guy that bought pre-construction, thought he couldn't lose. And he's actually got quotes that say, I didn't think anyone could lose money in Toronto real estate. That was your first mistake. And then you get people saying things like, well, I assumed I could assign the agreement of purchase and sale. And that's a whole other topic. I don't

SPEAKER_01:

want to throw this guy under the bus too badly, but fuck it. He put himself out there. Let's do it. So there's this Toronto Star article about this guy whose deposit is tied up in this failed condo development. And he's kind of like, hey, man, I want my deposit back. And what's hilarious is this guy, well, two things. First off, doesn't realize that had that development gone ahead, he would have lost his deposit and then some, because that dude bought at peak. So he's kind of like crying about, hey, my deposit's tied up. I'm like, dude, you dodged a bullet here. That's the first thing. The second thing is that, you know, this dude works as a financial planner for a bank.

SPEAKER_02:

Yeah. And he went on record. He went on record.

SPEAKER_01:

And he's out there like talking about this. I'm like, dude, you're advising people. how to make smart financial decisions. And you're out there like specking into pre-con at peak, like, This is crazy, man. Canada's a crazy place.

SPEAKER_02:

You know what the answer is? You know what the answer is? The government should bail him out. So have that project gone ahead. Because listen, cynically, I believe that everyone in Canada thinks that if they get into trouble, the government's there to save them financially. Yes. You know, when I was on CTV your morning the other day, I was talking about, you know, pre-construction and all these people now that are saying like, this isn't fair. I said, look, you were gambling. If you went in the casino, you put all your money on the roulette wheel. And your number didn't come up. You wouldn't turn to the pit boss and say, actually, can I have that back? But everyone that bought pre-con, they're now saying it's not fair. I can't assign it. Prices are down. I want my deposit back. And then to your point, if the project doesn't go ahead, all you lose is your deposit. If the project goes ahead and they expect you to close, they're going to sue you for the losses, which is what we saw. Who's the developer? I can't recall. Starts with a C. Yeah, they're suing all of the buyers, right? Yeah. Which they have

SPEAKER_01:

the legal right to. They're well

SPEAKER_02:

within their rights to do that. All right. Well, listen, I said I'd get you out of here. I know you got some work around the property. Just working on homes, man. I went home last night and I mowed my lawn at 8 o'clock. I look forward to it all day. Just crushing the front lawn right

SPEAKER_01:

now. It's a good way to just kind of unplug right yeah

SPEAKER_02:

all right listen i appreciate it ben thank you so much um we're gonna put this podcast out put it up on the blog as well and uh i'll catch you next time thanks buddy sounds good buddy okay take care bye Well, there you have it, folks. I hope you enjoyed the preceding banter between me and Ben Rabideau, just two guys chatting unscripted for an hour about all things real estate, economy, politics, housing demand, supply, and oh my God, pre-construction. If you happen to be watching this on YouTube, feel free to drop a comment down there. Don't feel like you need to be nice because you know all those comments go to my phone. Sometimes I'm like putting my daughter to bed. There's a comment that's like, yeah, well, you're just a scumbag real estate agent, piece of crap. I'm like, yeah, no, that's 2025 for you. Seriously, though, don't stop leaving comments in the YouTube section. And if you happen to be listening to this podcast on Apple or Spotify or whatever other cool things there are that I don't know about, like ICQ, uh-oh, if you're under 40, you won't get that, or MSN Messenger or wherever you get your podcasts, please remember to like, comment, and subscribe. We'll see you next time here on The Last Honest Realtor.

People on this episode

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David Fleming, Broker

Host
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Jonathan Finlay, CIM

Producer
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Benjamin Rabbidoux

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