Over the cliff?

Three more sleeps until the first interest rate cut of the entire year. Those little hairs on the back of realtor and mortgage broker necks are tingling.

It’s been a dogawful year, after all. Political upheaval, elections, tariffs, trade war, Trump, rising layoffs – all leading to a crash in sales, a growing pile of inventory, suicidal builders and, yes, lower prices. There has not been a decent seasonal market in almost three years. Realtors are living on fumes and driving Uber. That stakes for this anticipated rate chop could not be higher.

And let’s not lose perspective. Mortgages are not 9% or 12% as was the case in past market crashes. Home loans are just 4%, or half the long-term average. And real estate values are not going up. The opposite. In fact, in the GTA a regular, boring single-family detached house now averages $1.225 million. That’s decline of 7% from a year ago – and a smashing 27% below the Feb/22 peak of $1.68 million.

Twenty-even per cent is close to a third off, and not distant from the largest-ever price decline of 32%, set in the early 1990s. Yeah, thirty years ago. That drubbing then – which, like today, caused social angst, bankrupted builders, nuked speculators and resulted in broad government intervention – set the scene for a multi-decade price romp. Between 2005 and 2015, prices doubled. In the last decade the increase has been less – 64% – now that we’ve had a three-year-long slow melt.

The point?

If prices have declined by almost a third, if already-kinda-cheap mortgages start stepping down in cost, if there’s a record number of listings to choose from and the new guys in Ottawa throw billions more into housing and incentivizing buyers, won’t sales jump? Why wouldn’t this be like 1996, when few people noticed the market had bottomed?

One explanation is that humans run in herds. People are massively influenced by what other people are doing or feeling. So when sales and prices are falling we conclude danger is everywhere and it’s time to turtle. But when bidding wars erupt nd FOMO grips, prices erupt amid a frenzy to buy,

The other explanation is that, yes, we’re actually on the verge of collapse. This is more popular. And not just in the steerage section of this pathetic blog.

Cue John Pasalis, the gadfly, media-hungry celebrity broker (who hates me). He’s convinced the ship is sinking.

“Some homeowners are pinning their hopes on the Bank of Canada cutting rates this fall,” he writes in his latest report. “But the reality is that a weak economy, ongoing uncertainty, and only modest rate relief aren’t enough to spark a surge in demand. Even a new U.S. trade deal, while helpful for confidence, is more likely to bring buyers back gradually, not fuel a hockey-stick rebound.”

The market, he asserts, is pooched. A new reality, he calls it: “slower demand, more supply, and prices that may need to fall further before stability returns.”

Others, like real estate data and market research firm Urbanation, look at the current condo collapse as something that only grows deeper and darker each month. So far this year in the Toronto area, for example, nine more projects have been cancelled, with more about to fail. So, close to 3,000 units will not materialize.

The company is tracking others soon to collapse for lack of pre-sales. To be financed, developers must sell 70% of their inventory before breaking ground. Urbanation says 16 additional projects, containing more than 5,000 planned units, have sold fewer than 40% of units in the past year. Not good.

And as reported here previously, the entire construction industry is on its knees. “New home sales in July 2025 extended the severe slowdown the market is currently in the midst of with another record low for the month,” says industry tracker Altus Group. “The protracted nature of this market has now surpassed the severe downturn in new home sales during the early 1990s.”

Yeah, worse that the worst time. Yikes. Sales last month were 48% below 2024 levels, which were terrible, and 82% under the 10-year average. The group, representing residential construction trades (ResCon) is telling us 100,000 folks in this one single market will soon be out of work.

Pasalis says the contagion is spreading to already built and occupied condo towers. It only takes a few desperate sellers, he says, to accept low-ball offers which then resets valuations for an entire complex.

“Toronto’s condo market is under more stress than headline numbers suggest. While average prices dipped just 4% year-over-year in August 2025, that figure masks a troubling dynamic: a growing number of distressed sellers are unloading units at steep discounts compared to what identical units in the same buildings sold for within the past year,” he reports.

“When a condo sells far below recent comparables, it doesn’t just hurt that seller. It has the potential to reset prices in the entire building. Buyers and their agents often anchor to the lowest recent sale when negotiating, meaning one forced sale can drag down values for dozens of units….

“If this trend continues, two major consequences loom. First, more distressed sales will begin to reprice entire buildings, leading to sharper declines in average values. Second, the widening gap between falling resale prices and still-elevated new condo prices could chill pre-construction sales and delay new projects for years, even if policymakers decide to slash taxes on new condo construction.”

Well, there you have it. Human nature and economic reality. Either this week’s rate cut (and the ones that will follow) rescues real estate from the cliff, or over she goes. Are today’s low-ball buyers actually jumping in at precisely the wrong moment, staring at big future losses? Or is this a 1996-moment when the prescient few understand that the masses will inevitably, uncontrollably, emotionally catch up?

Or we could just debate the lionized Charlie Kirk.

About the picture: “This is Miles Davis,” writes Sarah. “He was a jaunty fellow that belonged to a friend of mine. He passed away in December of 2024 at the age of 14 and he and his sassy personality are missed by everyone. Thanks for the daily posts – I read almost every one.”

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

Source: https://www.greaterfool.ca/2025/09/14/over-the-cliff-2/