Desperados

This pathetic blog has taken grief for the past five years in saying there’ll be no real estate price collapse. Instead, expect a slow melt.

So far, right on. Prices are down single-digits in the last year. The decline since the peak in 2021 is about 15%. Steady, relentless, drip, drip, drip.

But wait. What if all this has just been a striptease for the main event?

What if Trump, trade wars, Ukraine, Iran, Putin, Gaza, oil and debt blow up our consumer-spending-based economy in which average people can no longer afford average homes, and deliver a fatal blow? After all, things are not exactly getting better. The orange guy quitting Carney’s G7 gabfest wasn’t cool. Now there are fears America may itself bomb Tehran. Oh my.

So if buyers stay on strike, if high oil pumps inflation and leads to a rate increase, how can stupid real estate prices stay aloft?

Maybe if we’re going over a cliff, it will be those assignment condos that lead the way. After all, they’re the premier symbols of a market that totally lost its mind. Buyers – mostly investors – paid top dollar for pre-con units they thought would deliver fat capital gains by the time the construction cranes had come down. Moreover, they’d be able to rent those units out to eager tenants for enough to cover ownership costs.

Well, fail. Wrong n both counts. Rents are going down. Costs are going up. And the value of those units is plunging. Take a look at some recent listings from a GTA brokerage that specializes in assignments.

(These are units for sale by owners who don’t own them yet and are willing to ‘assign’ the right to buy to a new purchaser before the original closing day. In many cases those pre-construction buyers cannot afford to close, given current values and mortgage conditions. So, ouch, they’re bailing out at whatever level is possible.)

Source: Assignment Plus

There is no sympathy for the speckers and flippers who flocked into sales offices during the crazy days of Covid with minimum downpayments. But at the time, it looked like a no-brainer. FOMO stalked the land. People lost their minds. Resale homes flew higher in value amid bidding wars. And condo developers could ask outrageous amounts – like $1,400 per square foot – for boxes in the sky that were three or four years from being ready to set foot in.

Today thousands of assignments flood the market. They join 17,000 available new condo units in the GTA alone. Sales of new units have ground to a complete halt. No fresh cranes are being erected. Lenders have pulled in their horns. Mortgage rates may be about to increase. And equity is being lost by the hour.

And what of these significant losses? After all, the assignment seller has to pony up the difference between the original selling price and the deeply discounted amount the assignment buyer is paying. Are these mounting losses deductible? Like buying Tesla stock before Elon does something stupid?

Nope.

The meanies at the CRA will not accept this as a capital loss, and also not as a business loss. Here is the logic, as spelled out in federal interpretation bulletins:

• Buying a pre-con unit, or selling an assignment for one is a purely speculative action. The government does not consider this a business activity, or a capital investment. Your personal risk, and your personal finances.
• The assignment right isn’t a capital asset like a stock or an ETF or a rental house. So, a loss when sold isn’t deductible under capital gains rules.

Sorry. Now suck it up.

The impact of the condo collapse is as yet unknown. It could be absorbed by a few thousand miserable, regretful flippers enmeshed in their own greed and delusion. Or it could ripple and ricochet through an entire urban market. After all, logic tells us when house prices have not meaningfully fallen to reflect supply, incomes, household debt levels or the fact a crazy dude is running the world, there’s probably more to come.

But how much?

About the picture: “I offer a picture of an exceptional blue heeler, Smoky,” writes Richard, in Calgary. “Although originally hired as my dad’s fishing buddy, Smoky was later reassigned as a companion to my mom after my dad’s fatal cancer diagnosis. Stubborn, needy, whiny, and incredibly intelligent, Smoky was one of a kind. He had a habit of jumping into bed with you to sleep, but only if he could lay beside you with his head on a pillow. Unfortunately, we also lost him to cancer earlier this year at age 6.”

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

Source: https://www.greaterfool.ca/2025/06/17/desperados-2/