Juggling Dynamite

In March, the year-over-year change in new listings (yellow bars below) outpaced sales volumes (blue bars) in all major Canadian urban areas.
See Canada’s homebuyers wait out trade war fallout:

March saw more homebuyers retreating to the sidelines amid growing tariff threats—waiting to see what will happen to our economy next. This drove home resales down materially for a second straight time in many markets—reaching cyclically lows in southern Ontario, which is especially vulnerable to trade turbulence.

Several local real estate boards also reported weaker home prices in March including the Toronto region, Hamilton, Kitchener-Waterloo, Cambridge, Vancouver and Fraser Valley. Even in Calgary, prices flattened.

Prices are getting marked down, but relatively slowly, overall. Many properties are stuck in limbo while sellers hope for a return to the salad days of easy credit and bidding wars.

Property values are coming under pressure as inventories get more plentiful—stoking competition between sellers—while demand is skittish. Bargaining power has clearly shifted in the buyer’s favour in Vancouver, Fraser Valley, Toronto and other southern Ontario markets like Hamilton, Kitchener-Waterloo, St. Catharines, Niagara Falls and Windsor.

Data from Information Technology Systems Ontario (ITSO) and the Toronto Regional Real Estate Board (TRREB) shows that bidding activity on homes in the GTA largely seized up in March:

According to the report, approximately 20 per cent of GTA neighbourhoods with at least five sales were in overbidding territory in March, which is unchanged from February but down from 43 per cent just a year ago. On the other hand, the majority (73 per cent) remained in underbidding territory, with an additional seven percent at asking.

The 2024 Joe Debtor Canadian Consumer Solvency Study is available here; some takeaways:

Mortgage Renewals Financial stress among homeowners is expected to escalate due to higher mortgage renewal rates, potentially doubling the proportion of homeowner insolvencies to 8-10%.

Pre-Construction Market Stress: Struggles in the pre-construction condo market may contribute to rising real estate insolvencies as appraisals fall below original purchase prices. Investors can include any shortfall as an unsecured debt in a consumer or Division I proposal.

Regulatory Changes: New interest rate caps on high-interest lending may accelerate insolvencies by limiting access to emergency credit, a traditional stopgap for distressed individuals. The lack of short-term lending may pull many insolvencies forward.

This outlook highlights the many economic pressures burdening indebted Canadians, which we expect will continue to drive a substantial rise in insolvency filings in 2025.

Escalating financial stress among owners and lenders suggests downward pressure on property prices should continue.

Understanding that “defensive” equities offer little protection in bear markets is critical to meaningful capital protection. The table below (courtesy of Gary Shilling) shows what happened to different sectors and the S&P 500 index overall during past recessions.

Trying to hold through deep declines is hard; most people understandably panic after they have sustained big losses.  The final capitulation selling of all those who bought and held ‘high’ brings cycle bottoms, but that ‘deleveraging’ process typically takes 12 to 24 months to complete. We are currently just a few months into this downturn.

Proactive loss-avoidance requires steering clear or stepping away from bubbles before your capital implodes. We must be mature and sober enough to avoid/minimize our exposure to bubbles to miss out on the losses too.

As lovely as your investment adviser may be, the finance sector exists to sell products at every price and keep people holding the bag regardless of the risk-reward prospects for the individual client. Minimizing/avoiding losses takes counter-culture thinking and discipline, but it can be done with independence and a lot of focus.

As noted last week by insolvency counsellor Scott Terrio: “In matters of personal finance, avoidance is a huge protection, but it takes proactive decision-making and good advice. And there seems to be less and less good advice either on the internet or in terms of peer pressure. Avoidability.”

The cycle-savvy insights below are worthwhile.

DoubleLine CEO-CIO and Founder Jeffrey Gundlach joins CNBC’s Closing Bell with Scott Wapner on April 7, 2025, to discuss the recent reciprocal tariffs announced by President Donald Trump, emphasizing the significant widening of credit market spreads. He also expresses concern about the potential for leveraged investors to go bankrupt, stating, “This type of thing usually ends with forced liquidations.” Mr. Gundlach suggests maintaining a defensive position and holding cash due to expected continued volatility. In addition, he highlights rising recession probabilities, the Federal Reserve’s challenges in balancing inflation and recession risks, and the potential impact of tariffs on foreign investment in the U.S. Here is a direct video link.

Financial commentators predictably blame the Trump administration for ‘unexpected’ market losses.

Two things about that: the tariff file was not unexpected. Trump has promised to do this for a long time. Secondly, major downdraft cycles are the natural and recurring aftermath of debt abuse and asset bubbles.

Reckless risk-taking was an international pastime during the years of ‘easy’ money monetary and fiscal policies; it seemed fun while it lasted, but it was always a bug waiting for a windshield—bubbles burst every time—it’s what they do. The progress to date in some widely held benchmarks is summarized below.

The damage has been relatively light so far. As I have repeatedly pointed out, the average stock market decline during past recessions has been 30%, and 34 to 86% when valuations begin from extreme highs, as in 1929, 1973, 1999, 2007, 2019, 2022 and 2024. If prices are halfway through this bear market decline, historically, that would be a fairly mild loss cycle. These are the ladders and snakes of financial mania: Years of apparent progress are deleted in weeks and months. Most are taken by surprise.

The masses have no business gambling with savings they cannot afford or stomach to lose, especially for those at or within a few years of retirement. How long will it take for assets to recover losses this time?

It’s not too late to review risk exposures. It’s also worth repeating that real estate downturns have historically led to the harshest recessions, and that’s happening now.

I’ve diligently measured and mapped this incoming mess; frontline reports now confirm the unwinding. Insolvency trustees have entered their boom time. Hoyes, Mikalos’ consumer solvency counsellor Scott Terrio wrote this on LinkedIn last week:

Many people entered the housing market due to FOMO; many of them had really no business doing so as they couldn’t afford the homes they bought; yet buy them they did – somehow – co-signors, or with many qualifications being very suspect (mortgage-to-income ratios that would make your eyes water). ANYTHING to not miss out. But that kind of thinking can end up backfiring.

In many cases, things would’ve been ok had everything gone ok. But life isn’t like that, very often. The tipping points from doing ok into insolvency (whether legal insolvency or just technical insolvency) are often fine margins. Some of those factors are done by choice, even if never really intentionally.

In matters of personal finance, avoidance is a huge protection, but it takes proactive decision-making and good advice. And there seems to be less and less good advice either on the internet or in terms of peer pressure. Avoidability.

No truer words were ever spoken; none of this was unforeseeable. There was always going to be a catalyst for the delirium to break.

We have another opportunity to review financially destructive behaviours and make wiser choices that can improve health and stability for the rest of our lives. But we have to admit, repent and reform to recover. Repeating the same patterns and expecting different outcomes is just plain painful.