Not so fast…

The government wants you to buy a house. But the country’s biggest bank is saying, whoa, not so fast. More pain ahead.

Yesterday we relayed the guts of a report from Ottawa’s housing agency (CMHC) suggesting you should chill. The housing correction we’ve been living through, it claims, has hit bottom. Things are better than in the last real estate swoon (the early 1990s) and your manly George-Clooney-clone prime minister will get it all fixed, pronto.

Why better this time?

Interest rates are seriously lower. There is no vicious recession. Unemployment is way lower. We have more safeguards on people becoming over-extended. New tools to afford a home now exist, like the FHSA. And the price drop since the peak of 2022 has come years earlier than happened last time.

The story they want to you believe (that many commenters yesterday scoffed at): this is as bad as it gets. Do not expect a price crash. Go borrow money and buy something. It’s all good.

Poop, says RBC. A new report (which focusses on the sad Toronto condo mess) talks of a ‘frozen’ and ‘plummeting’ market which won’t be fixed any time soon. “The dramatic downturn represents more than a cyclical adjustment—it could reshape Toronto’s housing landscape for years to come,” states economist Bob Hogue. “The stark reality facing developers today is vanishing demand and steep costs.We see interest in existing condos rising as the economy improves, but it will take a sharp fall in inventory to get new condo presentation centres busy again.”

As you know, it’s all grim. Buyers have stopped buying. So builders have stopped building. The crash in sales is, well, historic.

Off a cliff

Source: RBC Economics

The reasons, RBC suggests, are exactly why it’s not going to end soon. Whether CMHC and the feds like it or not.

Investors have picked up and left town (along with Vancouver, Calgary, Halifax and other metros).

Their interest “has largely evaporated, driven by a sobering reassessment of investment fundamentals.” In other words, with falling rents, rising ownership costs and now evaporating equity, it is impossible to make bank buying/owning a rental unit. In fact it’s a recipe for losses – as up to 70% of current investors are discovering. Meanwhile, look at what stocks and financial portfolios have been delivering – without property taxes, condo fees, insurance premiums or tenants who flush goldfish, pee off the balcony, moan and stay put even if they stop paying rent.

Bay Street is up 19% this year and 24% in the last twelve months. Contrast that with the average monthly loss of $597 for owners of rental condos – that’s seven grand a year in red ink vs making 20% on your money, with no hassles.

This is a reality that’s not changing. Ditto for the cost of building condos as land, materials and labour tick continuously higher. Builders cannot viably deliver what buyers can afford to purchase. In fact last month the average new-build condo in the GTA sat at $1,028,782. No wonder developers are now turning more attention to purpose-built rentals, bypassing investors and dealing directly with tenants.

Inventory – currently at bloated levels never seen before – is a major impediment to any market recovery. There’s a 20-month supply of new units that nobody’s buying. “This inventory overhang creates a self-reinforcing cycle where abundant choice reduces urgency, empowers buyers to negotiate aggressively, and makes developers increasingly reluctant to launch new projects in a saturated market,” says the bank.

Oh, and how many people are already struggling financially with real estate, throwing a soggy blanket on the whole market while swelling listings? “Financial pressure from mortgage rate resets are prompting some owners, including investors, to list properties for sale,” says Hogue. “Simultaneously, buyers who started pre-construction purchases years ago are struggling to complete transactions as the financing environment has tightened, and property values have adjusted.”

What next?

Nothing, suggests this report. Only more grief until maybe 2027. By that time unsold inventory should drop, the distressed resale market should be in better shape (as mortgage rates fall) and hopefully the economy is firing on more cylinders.

But no slam dunk. Lots could go wrong. Or wronger.

“A softer-than-expected economy would dampen housing demand, while more increases in new listings would extend inventory absorption. Further cooling in rental markets would reduce investor interest, and perhaps most importantly, any persistent gap between buyers’ price expectations and developers’ cost realities could postpone new projects,” says the bank.

Eventually demand will return and supply will be insufficient. You may wish then that you’d bought when blood flowed in the gutters. Unless it was yours.

About the picture: “Hi Garth. This is Fluff, who is American by birth but Canadian at heart,” writes Kevin. “He loves his new bow tie (and actually wears it all the time) plus the Canadian flag in front of our New England house.”

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

Source: https://www.greaterfool.ca/2025/09/26/not-so-fast-6/