Juggling Dynamite

Residential real estate is the most widely owned and highly leveraged asset class for households. For these reasons, housing cycles have outsized effects on consumer confidence, spending, the economy and financial markets. The deflating housing bubble will remain a major macroeconomic force in 2026. The discussion below is worth a listen.

Demand for US homes is the worst it has ever been, reports housing analyst Nick Gerli of Reventure Consulting. In his opinion, the only two things that will return the housing market to health will be more inventory for sale and lower prices. Here is a direct video link.

Breaking!!! It appears Calgary, Edmonton, Nova Scotia and New Brunswick have all joined the real estate crash party with Ontario and BC. January data shows worsening markets in all of Canada now, even in Quebec. Here is a direct video link.

Global equities began the year near record highs, supported partly by continued enthusiasm around Artificial Intelligence (AI) investment and expectations of policy easing.

However, February has seen more uneven performance: Technology shares have led the weakness as investors reassess how AI translates into corporate profits, GDP, jobs, and security/insecurity. See, AI Fears Drive Volatility, Triggering Declines in Stock Market It Powered for Years:

For three years, AI was the stock market’s savior. Suddenly, it’s become a marauder, and virtually no corner of the equity market looks safe from its impact.

Just in the past 10 days, investors have delivered swift routs to companies toiling in industries as disparate as logistics, real estate, software, private credit, insurance and wealth management. In each case, the release of a new artificial intelligence tool, most famously from Anthropic PBC but also from small, lesser-known startups, prompted a rapid reassessment of business prospects.

While some of the selling pressure eased Friday, major US averages are headed for a second week of losses. Financials have led the drop this week, along with makers of consumer discretionary products and technology firms.

All of the so-called Mag 7 stocks are lower year-to-date. Despite a rally last Friday, the iShares Expanded Tech-Software Sector exchange-traded fund IGV is down 23.3% year-to-date.

The S&P 500 has returned to the level first attained in October 2025, and Canada’s TSX has been flat since January 19th. Last week saw the weakest weekly performance since November 2025.

Selling is contagious, with margin calls spreading losses across crypto markets and precious metals.

This pattern is typical in late-cycle environments in which valuations are elevated, and financial speculation has been rampant.

Oil markets remain influenced by both geopolitical risk and slower global growth expectations. Oil prices are 10% higher year-to-date but vulnerable amid supply increases and softer demand forecasts. The International Energy Agency expects global supply to exceed demand in 2026 unless production is curtailed.

For Canada, commodity price stability remains a key support for economic activity and currency performance. The Canadian dollar has appreciated by approximately 1% against the U.S. dollar year to date.

Trade tensions continue to influence investor sentiment. U.S. lawmakers have begun moving toward repealing tariffs imposed on Canadian goods during the 2025 trade dispute, though final resolution remains uncertain.

At the same time, broader geopolitical developments — including ongoing policy initiatives from Washington and global diplomatic activity — continue to shape economic expectations and market volatility.

Markets historically adapt to geopolitical noise, but sudden policy shifts can trigger short-term market reactions.

While headlines shift frequently, the bigger picture remains consistent:

• Interest rates are likely to stay structurally higher than in the past decade.

• Economic growth appears moderate rather than robust.

• The job market has been significantly weaker than 2025 reports originally suggested.

• Elevated valuations in most sectors and assets yield higher than average capital risk.

There is a timeless adage that smooth seas do not build the best sailors. Over the last 18 years, asset markets have been buoyed by unprecedented monetary and fiscal support, record stock buybacks, ultra-low interest rates, and regulatory forbearance. Most participants today have not experienced, or do not recall, “normalized” financial conditions in which fundamentals matter. Real estate investors are now being educated.

Periods of market stress typically create the best long-term opportunities, while exuberant phases tend to hurt future returns. In this environment, disciplined diversification, valuation awareness, and patience remain critical.

Decades of real-life experience confirm that avoiding capital impairment is more important to financial health than chasing short-term market enthusiasm.

Each person must make financial and capital allocation decisions based on their own needs, loss tolerance, character and peace of mind. There is no free lunch with any approach; adults make choices.

Our focus remains on preserving capital through full market cycles so that we can selectively deploy cash when valuations become compelling.

As I have noted many times, historically, a maximum of 3x household income has been considered the limit of what is considered “affordable” for homes. In Canada, with a median household income of 84k, this would mean homes priced at no more than $252,000. Today, the national average home sale price is $660k (down from $ 852k in February 2022), but it is still about 8x the median household income.

In 1991, our first family home cost 2x our household income, and the same 2x ratio held as we upscaled to our second and third family homes in 1996 and 2000.

Today, in the Greater Toronto and Vancouver areas, the average home sale price is in the $900K to $1.1M range (about 10 times the median household income). In the Prairies and Atlantic regions, the median home sale price has been in the $300K to $500K range, roughly 4 to 8 times the median household incomes of $75K and $65K, respectively.

The good news is that prices are finally coming down, and so are rents. See Condo crash pushes down Toronto asking rents to $2,500 a month due to ‘sheer volume of supply’.

The bad news for existing homeowners, investors and lenders is that lower rents pencil to lower home prices and significantly more downside is needed before bubble pricing is mean-reverted once more; see More Toronto condos are selling in the $300,000s as prices finally become (slightly) more affordable:

It’s not just condos experiencing price dips, but the entire market from detached homes to micro units. In January, the average selling prices for all home types in the GTA was $973,000 — the first time prices fell below $1 million in five years. The feeding frenzy of the pandemic, which saw over-leveraged buyers jump into the market and speculators push prices to their limits, is gone. Sales hit their lowest number in 25 years, and prices are down 27 per cent from the February 2022 peak.

A growing share of single-family homes are popping up in the market for under $1 million, and an increasing number of condos are selling for less than $500,000.

These properties act as an appealing entry point for first-time homebuyers looking to get into the market at prices not seen in years, and for those outside the GTA who have returned to the office and want a pied-à-terre in the city to cut down on long commutes. They’re also attractive to buyers simply looking for a long-term investment — though experts warn economic challenges will continue to dampen consumer confidence, hindering potential price or sales growth in the year ahead.

A pickup in mortgage defaults and foreclosures is part of the process, as it forces price discovery and inevitably reduces comparables for other properties.

John Pasalis, president of Realosophy Realty Inc., talks to Financial Post’s Larysa Harapyn about how many financially stressed homeowners facing higher mortgage rates and lower home prices are running out of options. Here is a direct video link.

Similar trends are spreading across many U.S. markets as well.

Houses are starting to cheap in some U.S. cities as we enter the 2026 housing market. This house in Houston, TX is a 4×2, move-in ready, and on the market for $204,000. It’s being sold by an investor. Access housing market forecasts and data on Reventure App: https://www.reventure.app In the surrounding neighborhood, rental signs dot the landscape as inventory across the Texas housing market surges in 2026. Landlords are heading for the exits, and could soon be forced to stop buying if the Trump administration moves forward with the investor ban. Homebuyers, agents, and investors should expect a deflationary housing market environment across the South and West Coast of the U.S. in 2026. Inventory has stacked up, there’s plenty of homes for sale, and buyers are not coming back – because it is simply too expensive. Another headwind building for the housing market is with immigration. We could be coming off the lowest immigration levels ever in 2025 – suggesting that landlords and Wall Street investors could face issues in their properties. In this community in Houston, over 50 houses were for rent when I toured. Here is a direct video link.