On borrowed time

If a moldy groundhog can predict spring by sticking his snout above ground, what are thousands of investors telling us as they stampede the exits?

They smell trouble. Actually, many of them are already in trouble, wishing they’d never jumped into the condo-specking and rental business. A deadly combination of falling rents, stagnant or eroding prices and too-high mortgage rates is taking its toll, with a flood of listings amidst a very uncertain spring market that politics could make vastly worse.

In urban Toronto (416) alone, three hundred more units came to market last week, meaning more than a thousand have been added in a month. This is 1,600 more than a year ago, as data freak Scott Ingram chronicles, “and 2024 looked big at the time with almost 1,100 over 2023.”

So if you’re shopping in the DT right now, there are more than 5,600 choices. In the GTA as a whole, you have about ten thousand to choose from. Plus, there are 21,000 unsold new homes, 80% of them being condos.

Want a Toronto city condo? There are 5,678 available.

Source: Scott Ingram

The surge in listings (it’s happening with semis and detacheds as well) is not restricted to the GTA. In Ottawa, for example, the 3,300 properties currently for sale equals a whopping 57% in increase over last winter. Months of inventory have surged to 5.4, up a meaningful two months beyond 2024’s level. Meanwhile sales are pffft. Just over 600 deals last month, down year/year by 4%.

In fact, apart from Montreal, the housing market everywhere is seeing sellers swamp buyers. Prices have  gone sideways for the last two years. Realtors were expecting, anticipating and praying for a breakout in early 2025, but instead we may be setting up for a tumble.

Property prices have gone sideways for two years

Source: Toronto Storeys

So what’s up? The latest jobs report was strong. The Canadian economy has avoided recession. Corporate profits are robust. Mortgages that were north of 6% now hover near 4%. There’s a renewal, revival or regime change coming in Ottawa. Both the carbon tax and higher cap gains taxes will soon be history. New rule changes have lowered mortgage payments and seriously reduced required downpayments. So why are owners and investors bailing fast and buyers sitting on their hands?

Well, we may be at the end of rate decreases. Yes, we know the inflation rate came in coolish this morning at 1.9%, but that’s a hair higher than last month and was depressed due to the weird sales tax break. “As the GST holiday lifts from the data in the next two months,” says BMO Economics, “the headline tally will likely quickly rise to roughly match current core trends of closer to 2-1/2%, which have been a tad warm for comfort.”

You bet. That would send up the yellow flag over the Bank of Canada, which is already due to take a pass on its next rate-setting day, March 12th. Time may show the current policy rate of 3% was the bottom. In fact if Canada five-year bond yields start feeling frisky again, higher money costs are on the horizon. In short, fixed-rate mortgages may have bottomed. Buyers waiting for cheaper money will not be happy.

And then, wow, March. Tariff Man Month.

Those debilitating US taxes (25% – enough to turn out the lights in Hamilton) on our steel and aluminum are set to hit mid-month. And a week prior to that we may be dealing with an equal tariff load (along with Mexico) on all Canadian shipments south.

“The BoC is in a difficult place,” say the economists at TD. “Does it weigh the downside risks to the economy in the face of U.S. tariffs, or does it focus on recent economic strength and the impact this is having on inflation?”

Nobody knows. Nobody can know. Nobody can even wisely speculate, let alone plan. Trump is capricious, unpredictable, quixotic and undependable. Just weeks away from economic actions that can thrust us into negative growth, set off a monetary emergency and erase the jobs of hundreds of thousands of Canadians, we’re blind to the man’s true intentions. This is the height of presidential responsibility. More important, it’s no way to treat your BFF.

The econs at CIBC are a little more hopeful: “We continue to forecast a trough of 2.25% for the Bank of Canada’s overnight rate, but the path there will depend on how/if tariff uncertainty is resolved as well as upcoming GDP and employment data.”

The bottom line is that we’re in a period of profound muckiness. We may be okay. We might be pooched. Trump may be toying with us. He might relent. He may just crush us (and Mexico, Europe, Ukraine, Denmark and Panama – and Gaza) in order that America become like him. Golden.

Wisely, people don’t buy houses and take on heaps of debt when job loss is a thing. Understandably, investors who are losing money and patience want to bail. Homeowners who think things may get worse, are keen to cash out.

Coming up: six months during which the indebted may be regretful. And the vultures rewarded.

About the picture: “Emailing from frozen Saskatchewan. (-34 today, windchill not included),” writes Brayden. “I’ve been reading the blog for several years now and always enjoy reading it. I disagree with many of your views but always welcome and appreciate seeing things from different perspectives. You’ve given me lots of fuel for productive debate.  I wanted to share a picture of our two dogs (Willow – 10 year or Bernese cross and Fern – 5 year old Newfie cross). Much appreciation.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/02/18/on-borrowed-time-2/