Juggling Dynamite

Anyone who plays Monopoly can experience how quickly real estate holdings drag once cash in hand proves insufficient.

Bubbles may seem fun on the way up, but they’re universally brutal in the inevitable deflation stage. China’s stimulus boom helped inflate global demand and real estate prices after the 2008 recession, but mean reversion has been in motion since 2020 and counting.

Policy interventions to avoid price discovery and arrest market clearing only prolong the pain. This is a heads-up for Canada and other countries where real estate mania was also a national obsession from 2009 to 2022.

As we saw in the ‘lost decades’ following Japan’s property bubble bust in 1989, real estate deflation cycles exert a prolonged, heavy toll in a series of economic dominoes. See China’s Property Crisis Enters a Dangerous New Phase.

Signs of trouble are now popping up everywhere. A brief revival in home sales has fizzled despite multiple rounds of stimulus from President Xi Jinping’s government. Chinese bankers have mostly stopped lending to real-estate projects outside major cities such as Shanghai, according to people familiar with the matter. And international creditors are losing patience: More debt restructuring deals are unraveling and at least a dozen developers face petitions to liquidate, including once-storied names like Country Garden Holdings Co.

The pain is also spreading to Hong Kong as Chinese homebuyers and tourists pull back. New World Development Co., a real-estate giant controlled by one of the financial hub’s richest families, is racing to sell assets and mortgage some of its marquee properties as losses mount.

Similar problems in many highly indebted developed economies now simultaneously challenge domestic growth at a time when tariff wars are poised to hurt exports.

Blackstone is selling off their subsidiary Home Partners of America, and doing big price reductions on certain homes. This is an indication of the ongoing investor selloff occurring in the US Housing Market. Big Wall Street investors like Blackstone and Amerst Holdings have lowered their purchases of homes, and haves started to sell off properties. Here is a direct video link.

The Hoyes, Michalos 2024 Canadian Joe Debtor Survey is out and available here. The numbers portray Canadian households as increasingly cash-strapped and vulnerable to unexpected shocks or economic weakness.

S0me standouts:

• The average insolvent debtor owed $60,678 in unsecured debt in 2024, an increase of 12.2% from 2023—the largest annual rise since the study began in 2011.
• Driving this surge was a sharp rise in credit card debt, with average balances increasing by 25.9% to $20,398, now accounting for 34% of total unsecured debt.
• Millennials (aged 28 to 43) experienced the steepest increase, with credit card debt climbing 35%.
• Senior debtors (aged 60+) carried the highest average balances at $27,543.
• Insolvent homeowners faced a significant erosion of home equity in 2024, with average equity falling from 21% to 10% and 14% of homeowners experiencing negative equity.
• Vehicle loan shortfalls also re-emerged, with 31% of financed vehicles now underwater—a level not seen since 2016.

Financial stress is projected to intensify in 2025:

“…we expect consumer insolvencies in Canada to rise by 20–30% in 2025, driven by rising unemployment, record-high credit card debt, financial stress from elevated mortgage renewal rates, and challenges in the pre-construction condo market. “

Doug Hoyes discussed their findings on BNN yesterday.

Doug Hoyes, Co-founder of Hoyes, Michalos & Associates, discusses rising household credit card debt as an indicator of the future. Here’s a direct video link.

At the same time, for-sale inventory is exploding in some key Canadian property markets as property-heavy, cash-tight owners look to reduce negative carry. See Toronto home sales fall, inventory surges 70%:

Home sales fell 7.9% to 3,847 units in January, as buyers left the market. At the same time, new listings climbed by 48.6% to 12,393 homes. The sales to new listings ratio (SNLR) plummeted to 31% last month, one of the lowest levels on record. A SNLR at this level is considered an oversupplied market, where prices are expected to fall. Not the case last month, but it will be hard to sustain the trend if the market continues in this direction.

Weak demand and a flood of sellers helped push the total remaining inventory to lofty levels. There were 17,157 active listings in January, an increase of 70.2% from last year. It was one of the best-supplied markets ever for the month.

January isn’t typically a big month for real estate markets, but this one was more interesting than usual. Falling sales wouldn’t be surprising, especially given the turbulence over trade and potential tariffs. However, falling sales and rising prices alongside a massive surge in inventory is not a typical response. It likely indicates that expectations of the mortgage tinkering the Bank of Canada (BoC) warned against are driving the emotions of a handful of buyers who believe the market is set to take off. However, the wall of sellers probably feel like they’re in a completely different market.

The explosion in new listings (yellow below) greatly outstripped resales (in blue) in major population centers, except for Montreal. See RBC report. Sellers set the tone for Canada’s housing markets as 2025 rolls in.