Juggling Dynamite

In the ‘easy-money’ ultra-low rate era, there was a lot of demand from secondary property owners for recreation or renting to others. Most were over the age of 50. An increasing number will look to sell to lower overhead/upkeep and free up cash flow in retirement.

The good news is that this will continue to increase the supply of properties in many areas and help deflate the price bubble that made housing unaffordable. The bad news is that many sellers who bought, renovated or refinanced near the bubble peak face losses.

The next time someone says, ‘You never lose money in real estate,’ tell them that’s nonsense and not supported by history. Realism informed by math is rare and valuable. See, They bought cottages during the pandemic real estate rush, now they’re losing when they sell:

A flood of buyers from cities pocketed recreational properties in cottage country all over the province, pushing prices to unseen heights. Now, after interest rates doubled, those pandemic buyers are trying to off-load their properties, and many are struggling to break even.

Across Ontario, the median loss for properties purchased in 2022 and 2023 and then subsequently sold was $45,000. In the GTA, the median loss was higher at $56,000. However, Muskoka experienced a median loss of $240,000 (although the volume of transactions was relatively low), according to a first-quarter 2025 report from Teranet, a real estate registry services company.

“During the pandemic, it was basically free money and it was easier to qualify for a secondary property,” Blenkarn said. “This is the fallout of that initial rush into the cottage market.”

Mean-reverting price pressures are not just in Ontario.

Investors are missing in both Vancouver and Toronto’s Condo markets for many reasons, contributing to Canada’s housing crisis in 2025. Join me together with other experts as we discuss this ongoing downturn trend with new listings piling up and the sentiments of buyers and sellers in the market. Here is a direct video link.
 More than 2,000 new condos in Metro Vancouver are sitting unsold and empty despite an ongoing housing crisis and steep rental prices, according to a recent report. Here is a direct video link.

CNBC’s Diana Olick joins ‘The Exchange’ to discuss the surge in supply of homes in the U.S. Here is a direct video link.

The S&P 500 risk premium—forward earnings yield minus the 10-year Treasury yield—is once again about zero (below since 2000, via The Daily Shot). Such dismal equity risk-reward prospects have only been seen once in the last quarter century and that was coming out of the 2000 bubble top. The large cap S&P 500 went on to crash 45% from March 2000 to October 2002 and did not recover its 2000 cycle high until July 2007, whereafter it crashed 56% into March 2009. It would not be until January 2013 that the S&P 500 durably reclaimed its 2000 secular high. Decade + periods of negative returns are the typical aftermath of extreme overpricing periods. Believe it or not.

Heavy participation from retail bagholders ‘investors’ is typical of market tops. Retail dip-buyers purchased a record $4.1 billion in US stocks during the first three hours of Monday’s trading session (shown below since 2014).

Finance-funded media has sucessfully fuelled another round of market mania in the past few years and enabled prices to dramatically overshoot earnings growth.

This is true even in the highest growth tech space. S&P 500 tech companies’ estimated earnings (yellow line below since 2023) grew an impressive 50% from 2023-2024 but their share prices (in blue) jumped an average of 112% (chart via @callieabost).Just as real estate owners are finding out the hard way (again), buying assets at uneconomical prices may seem busy and smart in the near-term, but mean reversion periods inevitably take back unearned winnings.

Bear markets, it is said, are periods when assets are returned to their rightful owners–strong hands take back from weak. And so it goes, cycle after cycle. This time is not going to be different.

In April, Canada’s unemployment rate rose to 6.9%, the highest since September 2021 and 210 basis points above the July 2022 cycle low of 4.8% (shown below since 1950).

Beata Caranci, chief economist at TD Bank, expects a recession in the coming quarters and another 100,000 job losses by the fall. See, Canada’s economy is in flux as Trump starts cutting tariff deals.

The share of Canadians who have been out of work for over a year is already the third highest since 1976 (monthly, seasonally adjusted, shown below in black). Historically, the unemployment rate has risen for several quarters after recessions (blue bars) have ended.

Despite reports of more people planning to vacation in Canada this summer, the latest from Indeed Canada shows summer job postings down 22% from last year as of early May.

According to the Canadian Real Estate Association, April home sales fell by 0.1% month over month—a fifth consecutive decline—while the consensus expected a 1.0% increase. The year-over-year trend, at -9.8%, has been stuck in negative territory since February, and cumulatively, there’s been a near 42 % drop in sales since the cycle peak in March 2021 (below since 2007).
The National Composite MLS® Home Price Index (HPI) declined by 1.2% from March to $679,866 in April 2025 and is -17% from the cycle price peak ($817k) in February 2022 (below since 2005). Nationally, home sale prices in April were still a crushing 9x the median after-tax income of $75,000 (the long-term affordability norm has been 3x). A year ago, the Bank of Canada’s (BoC’s) policy rate was 5%, and the average 5-year fixed mortgage rate was around 6.05%. Today, the BoC policy rate has paused at 2.75% since March, and the average 5-year fixed mortgage rate is around 4.39%–still more than double the sub-2% rates many Canadians borrowed at during the pandemic.

According to the BoC’s latest Financial Stability Report, about 60% of all outstanding mortgages in Canada will renew in 2025 or 2026. Based on current market expectations for interest rates, approximately 60% of mortgages in this group will see an increase in their payments at renewal. Most of these are five-year fixed-rate mortgages that were originated or renewed during the pandemic at record-low interest rates. 

Canadian insolvency trustees report a steady rise in consumer insolvency filings, including among homeowners. Insolvency Trustee Scott Terrio connected the dots in a LinkedIn post last week:

We all hear a lot about Canadians having used credit for downpayments during the housing boom. But I am also hearing quite alarmingly often how Canadians used credit for the stock market, crypto, etc. Like large numbers borrowed, and by the time they’re meeting with me those investments are all lost. So the banks/lenders are out.

Unfortunately, not just housing is eating away at Canadian financial stability.

The Bank of Canada’s preferred “core” inflation measures for April—CPI-trim and CPI-median (which exclude the impact of the recent carbon tax reduction)—edged up to 3.1% and 3.2%, respectively, on a larger-than-normal 0.4% month-over-month increase.

This was the first time these metrics had surpassed 3% year over year since the first half of 2024 (shown below since 2021). Higher vehicle and food prices are starting to reflect some impact from tariffs, but the broader upward surprise came from growth in service prices. See, Canadian CPI growth firmed in April, excluding tax changes.

Restaurant prices surged 3.6%, travel tours 6.7% year-over-year, and rents rebounded in April. Shelter inflation continued its slow pace of moderation, while mortgage interest costs remain elevated.

The stock market remains in a dream world, wildly disconnected from economic reality. That makes it much more dangerous than average.