Juggling Dynamite

The benchmark Canadian home resale price has fallen more than 21% in nominal terms (25-30% in real terms) from the 2022 cycle peak (shown below since 2020).

But new home prices have fallen just 8% from the peak nationwide because builders have used incentives, including mortgage rate buydowns, to avoid top-line price cuts.

More price cuts are needed, as so far, home ownership costs as a percentage of household income remain far above historical affordability norms (shown below since 1985).

According to the latest CMHC report, new home construction in Canada is set to decline through 2028 as developers face high costs, weaker demand and more unsold homes. Condominium starts will be especially weak. Rental projects will continue to drive new supply but will moderate over the forecast period.

Rental markets are moving toward balance on a national level as new supply eases pressure and rent growth slows, giving renters more flexibility before buying a home.
Regional housing markets vary significantly.

A negative for economic growth and jobs, new construction and home sales in Ontario and British Columbia are projected to be weaker than their 10-year averages.

Economist Eric Basmajin explains leading indicators and the importance of real estate construction and home renovation to overall economic growth in this segment below.

EPB Research provides economic and business cycle education, analysis, and consulting to asset managers and business owners. Here is a direct video link.

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.