Housing Crash Worsens

Thanks for clicking. Canada's crashing

real estate market just got another

great big headwind. Rising fixed

mortgage rates stemming from the war

with Iran.

>> You don't know nothing.

>> As we'll see today, inflation adjusted

home prices are back to 201617 levels.

In constant terms, back to where they

were about 5 years ago, while Toronto's

benchmark price is down 400,000 in a

period of 4 years. That by any

definition is a crash.

>> Shut up.

>> So, what I want to do today is go over

Canada's crashing real estate market.

take a look at what rising fix rates are

doing to affordability and then go over

some implications. As we'll see today,

while Canada's real estate market had

major major problems even before this

war began, rising mortgage rates are

only augmenting those problems. We will

obviously continue to track Canada's

real estate market on this channel. Make

sure you click like and subscribe if you

want to get those updates. But for now,

let's get into this data

onto Canada's crashing real estate

market. As mentioned, according to Beimo

Capital Markets, adjusted for inflation,

Canada's benchmark price has fallen back

to 2016 levels. And since we don't trust

anything the banks tell us on this

channel, I downloaded all of the raw

data myself from both the CRA and Stats

Canada, pasted them into Excel,

converted everything into 2026 prices,

and the chart looks the exact same as

the one provided by Beimo. Prices back

to 2016 levels. I also happen to have

Toronto's data dating back to 2014. So,

let's grab all of that. We'll delete all

of the CRA data heading back to 2005.

Paste in Toronto's. Do up a graph. And

look, also erasing all inflation

adjusted gains since 2016. So, for every

realtor that told you all of that home

price growth back in 2020, 21, and 22

was natural, stemming mostly from

supply. And for every central bank that

told you they weren't printing money,

well, as we've discussed before on this

channel, incompetent or greasy.

>> Yes. Regardless, given these massive

price drops, can we now label what's

happening to Canada's real estate market

as a crash? Well, let's take a look back

at the aftermath of the global financial

crisis when real residential property

prices in the United States, residential

property prices adjusted for inflation

lost at least 10 years worth of priced

gains 5 years after the peak. If the

global financial crisis constituted a

housing collapse than the United States,

which I think most would agree it would,

then I failed to see how what's

happening in Canada is any different.

>> Well, we're in Canada,

>> and it doesn't look like it's going to

be getting any better anytime soon given

what's happening to fixed mortgage

rates, with yields on the 5-year

Government of Canada bond up 60 basis

points, over 60 basis points in just the

last month alone. Yields jumped 60 basis

points or 6% in fixed mortgage rates

followed starting around 3.9 say about a

month ago moving to 4.2 by last week and

then jumping by another 30 basis points

on just Friday alone. So all in all

depending on the rates we went from

having a decent 5-year fixed of just

under three. Now we're sitting in that

mid 4% range. And that rise in mortgage

rates does do a fair amount of damage to

the average home payment. Let's take

Canada's benchmark price home of

$661,000.

We'll go with a minimum down payment of

411. We'll tack on that 4% CHC insurance

because the borrower had minimum down

payment and we get a total loan amount

of $644,800.

Using a 3.9% interest rate, we would

have had a payment of $3,350.

But when we use 4.4, we get a payment of

$3530,

a difference of about $200 per month.

That's not nothing for a firsttime home

buyer.

>> In all honesty, a very tiny amount of

money.

>> Speaking of that, very, very quickly for

first-time home buyers, if your

representative shows you that a variable

rate can save you an awful lot of money

in that your payment would be about $350

cheaper, which it would, and that

variable rate mortgages almost always

perform better than that of fixed, which

for the most part they do. Fire that rep

as soon as humanly possible. As even the

author of that widely cited and barely

ever read study, Moshmleski, will tell

you, variable rates are more for those

who have equity in their homes, those

who are refinancing, and not explicitly

not for firsttime home buyers who hardly

have any equity. Even more so right now

that you're in a declining home price

environment. As we just saw, you're only

going to have about $17,000 worth of

equity on the day of purchase, and home

prices are going down, meaning you don't

have a whole lot of room to maneuver.

That $350 a month in potential savings

is going to be heavily enticing as it

was back in summer of 2021 when fixed

mortgage rates started doing this and

the Bank of Canada still had rates at

zero. And some of the experts like Royal

Laage CEO Phil Soer told specifically

young people to consider a variable rate

mortgage. Fast forward six years and

asked those young people if they're

happy with their decision.

>> Are you scared?

>> Regardless, that additional $200 per

month in mortgage payments is not going

to be inconsequential to first-time home

buyers at a time when the real estate

industry tells us that it's going to be

first-time home buyers doing the heavy

lifting in the spring market. If you're

a first- time buyer, you've been waiting

around so long, I think we we're going

to see a lot of them start to to show up

and and start to pick some of these

listings off uh any day now.

>> Pent-up demand from first-time buyers in

particular, uh disproportionately

represented in the market.

>> And to understand what's happening with

that prediction on higher mortgage rates

that first-time home buyers are going to

be the ones entering the market, we can

consult with one Shonathan Kathkart from

May of 2023 when interest rates were

right about where they are right now.

slower market. There's less competition

from first-time buyers because interest

rates are up so much.

>> So, there we have it. According to the

Canadian Real Estate Association and

their worldrenowned economist Sean

Kathkart, the rapidly rising rates

stemming from the war will most likely

keep first-time home buyers out of the

market.

>> No need to thank me.

>> But seriously, the higher rates will

definitely have an impact on

affordability. If we consult with

Beimo's home affordability tool using

$100,000 income, the difference between

buying power on 3.9 and 4.4 is about

$20,000. And again, like we just talked

about, the difference on a variable rate

is about $40,000. I remember it was like

January 2021, and I had a borrower call

me who told me that a bank told them

they have to get that variable right

now. They have to close right now as

rates are about to go up. You

>> know, what are your alternatives? So,

with these rising mortgage rates for

those first-time home buyers, for any

buyers really that were planning on

getting into the market, and although we

do have very little evidence that that

was the case, well, those higher

mortgage rates are definitely going to

have an effect. They're going to make

buying power even worse. And for those

that do decide to get in the market,

those payments are going to be much,

much higher than they were just a few

weeks ago. Meaning, as we usually