Housing affordability in Canada is a major concern for anyone hoping to purchase a home amid the current climate of increasing prices. For the same amount as a two-bedroom property in Toronto, prospective home buyers could purchase lake-facing castles in Europe or even entire private islands, according to content creator Millennial Moron, who has noted these absurdities in a series of viral videos. In today’s episode of Sync or Swim, the Millennial Moron himself joins us to share his humorous yet insightful take on the Canadian real estate market, the housing bubble we find ourselves in, the need for more purpose-built rentals, and the impact that rising interest rates are having on mortgages, plus so much more! This conversation not only offers a well-informed perspective and valuable insights, but it also injects some much-needed humour into what many might consider a dire situation. For the Millennial Moron’s guide to Canadian real estate in 20204 and beyond, be sure to tune in today!

Key Points From This Episode:

What inspired the Millennial Moron to voice his opinion on the housing industry in Canada.
Insight into his strategy to use humour to illustrate the serious topic of rising interest rates.
Canada's housing bubble: how we ended up here and where we're going.
The need to correct a long-term deficit in purpose-built rentals.
Why owning property isn’t always better than renting.
What the cap on international students means for Canada’s housing shortage.
Millennial Moron’s market predictions for the next 12-18 months.
Correlations between the situation in Canada and the 2008 mortgage crisis in the US.
The impact that rising interest rates and inflation are having on mortgages.
Market sentiment versus cashflow and why the success of Canada’s real estate markets in 2024 hinges on interest rates.

Links Mentioned in Today’s Episode:

Listen to the episode wherever you get your podcasts, Apple, Google Podcasts, or Spotify.

“I think that also has all these knock-on effects in the broader economy that are quite bad as well, like whether you’re renting or owning, the cost and difficulty of moving is quite high, which means that your options in other ways are limited, right? Like for me, one of the big advantages I thought of when I was renting is that I had the ability to basically pick up and move within a couple of months if I wanted to, and I did do that to pursue career opportunities, right? I think a lot of people have this focus of ‘owning is always the best thing you can do’ but there are quite a few advantages to renting, especially when you’re younger.” - Millennial Moron

[INTRODUCTION]

[0:00:34.6] ANNOUNCER: Hello, and welcome to Sync or Swim, a weekly podcast, brought to you by Rentsync. Where we take a deep dive into the PropTech, multifamily, and rental housing industry. In each episode, we uncover the technologies and strategies used to help overcome operational challenges and increase the value of your multifamily investments. So, let’s get into our conversation today.

[INTERVIEW]

[0:00:59.3] GL: Hey everyone, and welcome to another episode of Sync or Swim. The podcast where we navigate the currents of the rental housing industry. I’m your host Giacomo Ladas and today, we have a very special guest whose content has been something everyone here at Rentals Odd saying Rentsync has loved for a very long time now.

So, joining us today is the Millennial Moron himself, one of our favourite content creators, who’s amassed a massive following on TikTok for his videos comparing Canadian housing listings through private highlands and castles around the world and on top of that, his YouTube channel offers a really unique perspective on issues all across Canada.

Honestly, we couldn’t be happier to have you on a podcast today, so thanks so much for joining us.

[0:01:33.8] MM: No problem, thanks for having me.

[0:01:35.6] GL: So, I think let’s start at the beginning. How did this start, how did this persona and idea start and what made you decide to voice your opinions online regarding the housing industry in Canada?

[0:01:45.4] MM: So, I guess, when this all started was maybe 12 to 14 years ago when I was kind of starting my career and I was looking into potentially buying a house, and you know, the standard advice that everyone was telling me was, “Yeah, owning is way better than renting” but I started running the numbers for myself and I couldn’t really make sense of it. It just seems like it was a lot more expensive to buy than it was to rent, even when you account for you know, building equity and all that kind of thing.

And over the years, I kept tracking it because I was you know, interested, what’s the best decision for me every time I move, and I kept seeing it get worse and worse and it kind of grew from a problem of it didn’t personally make sense for me to buy to something that I saw as starting to become more of a concern for the overall economy because we were building up more and more debt, that was all linked to housing and eventually, we were going to see interest rates rise.

It wasn’t a matter of if, it was a matter of when, and then I guess around 2022, right? We started seeing interest rates rising and that's what got to be kind of top of mind for me again. It was the first time I’d seen a sustained rise and it was on my mind again and I came back to this old idea that I’d had several years ago of comparing rundown crummy houses in Canada to private islands for the same price.

I’d never found a funny way to do it, but I gained some more video editing experience and things like that. So, I decided to start posting a few videos of it and they started blowing up and then people started asking, “Well, what’s going on in Canada?” So, I started sharing my opinions on it.

[0:03:17.7] GL: Now, that’s interesting because you have to find like a humorous angle to something that is ultimately kind of upsetting, right? That’s what I think is so impressive. It’s like, you're almost laughing at it through a vale of tears in a way because when you’re comparing to what you get in this country compared to places around the world, and yet, you found a way to really balance that out.

So, it’s just like it is funny because it’s so crazy. So, I think you found a really good way to balance that out where it’s not elitist, it’s not like you're seeing things that other people aren’t. You’re just looking at the data, looking at listings, and you’re just educating people on what this country is really at right now.

[0:03:55.9] MM: Yeah, and I think people have maybe been, I guess, oversaturated with content that’s you know, angry about what’s happening with housing or that keeps just describing the problem and they’re more ready just to take a look at exactly how ridiculous it is when you can compare, again, not just an average house but a completely destroyed or rundown house to something that's really nice somewhere else.

[0:04:18.4] GL: That’s the thing, they’re not like, really nice homes here. That’s the part too, you’re not comparing like a beautiful estate here with a bit – like that’s the part that always gets me. You find these listings and they’re always great. So, how I actually came to you was, on your YouTube channel, you have a really good long-form video where you talk about Canada’s housing bubble, how we got here and kind of what you’re looking at in the future.

Now, I’m assuming you have probably a large amount of viewers in the States or is it mostly in Canada, or what are the kind of viewership like? Do people connect within the States?

[0:04:49.1] MM: The majority is in Canada. I think it’s something like 30% or maybe a little more than the States.

[0:04:53.4] GL: Yeah, because I think it’s interesting because you do a really good job of comparing both and what happened in the US financial crisis to kind of what we’re at here now in Canada. Yeah, let’s maybe get into a little bit about what we’re seeing in Canada’s housing bubble, and maybe if you want to kind of start with – if you had to summarize what really is happening right now and how did we kind of get to this unaffordable housing bubble that we’re seeing right now? What do you think the main few reasons are that we’ve ended up here?

[0:05:19.9] MM: Well, there are many, many reasons. Everyone likes to have their, or I guess, most people create content about it like to have their pet theory about it and say, “You know, it’s this one thing.” But really, it’s more like, you know, a dozen or a couple dozen different problems, and you know, a lot of cumulative policy failures over the years, and also issues within our society with how we view housing and how we look at owning versus renting.

I would say that the main issues that we have in my opinion, the way I look at it is that we’re caught in this cycle of sort of debt becoming cheaper. Obviously, we’ve had this era of almost free money due to the US housing crisis that resulted in a long period of quantitative easing. So, we have really cheap debt that is encouraging people to sort of have FOMO, fear of missing out and beat up the prices of housing to get into the market before it’s too late as they say.

And then we have the government, who is kind of intervening to keep a price floor on housing rather than to try and make housing more affordable, right? Every time that it looks like house prices are about to drop, the government would extend more cheap credit to consumers, basically.

That’s what you tend to see over the past 15 years up until very, very recently, whenever the government is saying, “We’re doing something to make housing more affordable,” what they mean is they’re doing something to extend people more credit and you’re not actually changing the balance of supply and demand in the market. You're just injecting liquidity and cash, and so that’s obviously going to inflate the values of real assets like housing. So, over that period, you know, we saw our household debt ratio, you know, debt to disposable income increased to really record high.

It’s something like a dollar and 80 odd cents per dollar of disposable income now on average. You know, that includes households that have no debt. So, it’s really higher than ever before and now, what we’re seeing is that we’ve run into that inevitable eventuality of interest rates going up. So, basically, the cost of debt has quadrupled, which is a big concern for a lot of people because we are at these unheard-of debt levels or historically really high debt levels.

And you know, we can look at it on a per household basis but if we look at it on an overall basis in the economy, we’ve got something like 2.9 trillion dollars of household debt as of the last data from Stats Can and I believe it was about 2.3% of that is linked to real estate and mortgages. So, every quarter of a point rate hike becomes a major question to the overall economy but at the same time, we are badly in need of a deleveraging to get back to a more normal economy that is not so heavily focused on real estate, which is now our largest industry.

[0:08:09.6] GL: And this seems to be now like the only main issue that’s been talked about in politics, right? You know, everything seems to be about the housing supply issue and where we’re coming from at Rentsync is we primarily focus on rentals, right? Condos, townhomes, purposeful rentals, and a lot of what happens in the supply issue for rentals is tied to the ownership market.

Because there’s so many people who are currently living in an apartment that, one, we don’t want to get into the ownership market but they’re waiting because they really do feel like there’s either a crash that will come or interest rates have to go down a lot and until that happens, like there’s no supply in the rental market, right? And I think a huge part of that is because people are moving out.

They’re not moving out to get into the homeownership market and it’s kind of a pipe dream right now, especially with the interest rates the way they are. So, everything’s really tied together in how we’re kind of all in this together. It’s not really apartments versus home ownership. It’s happening in both sectors, they are really affecting each other.

[0:09:06.6] MM: Sure, and it’s not like those sectors are isolated from each other, right? I mean, you have an ownership market but within the ownership market, you have people who are buying investment properties to rent out, right? And so if rents are really high, that also pushes up the price of housing, or what we’re seeing now is that a lot of these kinds of smaller landlords who own individual properties, a lot of them were caught off-guard by the rising cost of debt, right?

A lot of people would leverage one home to buy another one and another one and we saw the cost of debt shoot up and they had not really priced in that risk. They kind of based it on the assumption that everything would be cheaper ever. Now, that has become such a large part of the market that rising interest rates are flowing through to rents because there’s so much leverage on that ownership for the purpose of rental side.

I do think one of the big things that we need to correct is this long-term deficit in purpose-built rentals. I think that’s a really important thing. You know, when I was renting, I typically had the advantage of being in a market that had a reasonable vacancy rate. Like, it wasn’t necessarily super high but if I was going to move out of an apartment, I would have a choice of a few different options of where to go and now, we’re really seeing that eroded.

A lot of people simply don’t have a choice of where to go or if you're out looking for an apartment, you know there will be long lineups for viewings, things like that. I’ve had multiple friends actually, who had to move and it got to the point where you know, the end of their lease was coming up and they didn’t have a place secured to go to, right? And that’s really a situation that I hadn’t seen before, where people, you know, even people who are working full-time are having a hard time just finding a place to live.

[0:10:59.0] GL: Yeah, and the whole landscape of renters now are different as well because you would think that who rents apartments while there are people who are moving out of their parents for the first time or they’re moving in with a significant other but it’s different now, right? The definition of what a renter is, these are families, these are couples with two good incomes with the kids, and they can probably afford a little bit higher premium rents and they’re being charged at which is –

And it is interesting you brought that up too because again, totally, I have someone who is a friend of mine who is moving back in the area and you know, he knows that I work in this industry and wants to see if purpose-built rentals are worth to look at and I gave him two options. I’m like, “You have this one and you have this one.” So, he’s like, “Oh, great, that makes it really easy.”

I’m like, “Yeah, and you probably should be there early because there’s probably going to be a large group of people looking at it.” So, it just limits people’s options, right? It almost makes them feel, I don’t want to say trapped but I guess for a lack of better word, that is what it is.

[0:11:52.0] MM: Yeah, and I think that also you know, has all these knock-on effects in the broader economy that are quite bad as well. Like, whether you’re renting or owning, the cost and difficulty of moving is quite high, which means that your options in other ways are limited, right? Like for me, one of the big advantages I thought of when I was renting is that I had the ability to basically pick up and move within a couple of months if I wanted to and I did do that to pursue career opportunities, right?

I think a lot of people have this focus of like, owning is always the best thing you can do but there are quite a few advantages to renting, especially when you're younger and especially you know, if you have enough money to have some options.

[0:12:32.3] GL: Do you think that’s a cultural thing? Because I really wanted to get on that point. Do you think it’s a thing that happens like it’s a cultural thing that you have to get into ownership and people are less reluctant to rent or it’s viewed as differently than somewhere else around the world that, “Oh, you’re a renter?” I wonder if you’ve seen any or wondered about any cultural differences between that because I do feel like there is something there.

[0:12:52.6] MM: Absolutely, yeah. Like, that’s spot on, right? I think we’ve seen a lot of people who really think that housing is a bulletproof investment because we’ve had basically a large generational cohort that has experienced only falling interest rates, right? It’s only gotten better and better to be a property owner if you already own property, right?

And now, we’re seeing finally, the reverse where interest rates go up, you see prices falling, you see the debt getting more expensive, and it can actually, you know if you bought in when rates were really low and prices were really high, it can become quite a painful situation and in many places around the world, it’s quite normal to be a renter even for your whole life, right? There’s no stigma attached to it.

And even within Canada, I think there are, historically, maybe not so much in the last few years but there was a big split in English-speaking Canada versus Quebec in that regard, right? Like, in Montreal or you know, any city in Quebec, it was quite normal to be a renter and for the same reason that you saw significantly lower home prices and especially like you saw more balance price to rent ratios, right?

Because people were not so obsessed with the idea of homeownership that they thought that renting is always the worst thing and owning is always better. They see the advantage of being a renter in some ways and you know, there’s even – I forget which day it is but there’s like a traditional moving day in Montreal, where you know, everybody just changes apartments on kind of the same day. So, I do think there really is a strong cultural aspect to it that needs to be dispelled a little bit if we want to get things back into a more normal kind of market.

[0:14:37.6] GL: Yeah, the thing I want to touch on a little bit is, I know it’s very doom and gloom, right? I mean, I want to kind of look at the positive side of things or maybe the stuff that content creators like yourself, or even a rent report side that show how fast rents are increasing across Canada. I feel like stuff like this is actually getting to policymakers and it’s getting to the government and decision-makers to really hopefully make some positive changes that will help the issue that we’re seeing.

I’m curious if you saw this week that the federal government is announcing a cap on international students. I think they’re limiting it by 35% just because of that supply and demand issue. Is that something you think is a positive step? Is that something that would you think we have to do it is kind of see what the integration numbers are. That must place some factor into this, correct?

[0:15:22.6] MM: Yeah, it definitely is a, you know, a matter of demand-side effect. I think there’s a lot of other issues with our student visa program that need to be addressed probably in short order and I think you’re right that getting these messages out does get to policymakers in a way. I don’t think it’s, you know, policymakers are watching what I’m doing and trying to make decisions based on it but the way I view it is that politics is kind of downstream of culture, right?

For many years, we weren’t talking about housing as a crisis exactly. You know, there were concerns about pricing but it was not a front-burner issue, right? So, neither party was addressing it and now that it’s become essentially so bad that it’s unbearable for many people, which is probably part of why my content is doing well, you’re starting to see both parties addressing it and you can see the same thing going on with the student visas, right?

Is that, neither party really wants to touch the status quo of what’s going on until people raise it as a concern and then they kind of both get after it. Like even as recently as, I think it was January 12th because I was looking into this yesterday when they announced it but January 12th, Poilievre, for example, declines to answer questions on whether he would put a cap on student visas or anything like that and then when the liberals announced that they were doing it, he then immediately said, “Oh yes, of course, I would do this and in fact, I would have done it much earlier.”

And at the same time, back in October, Mark Miller, the Minister of Immigration said that putting a cap on student visas would be like doing surgery with a hammer and that a cap was not on the table and now that everybody is talking and not that people are becoming more aware of these issues, I think a lot of people are aware of the number of students. I don’t think they’re aware of necessarily all the abuses that happen in the program.

Because if they were, I don’t think we, as a general society, would stand for it but the level of awareness on that is low. I’m still planning on making some content around that. But yeah, I do think it does have an impact on the housing market especially on the rental side, right? You’ve got people who can pretty much buy any property and cram as many students into it as they want and make a profit that way regardless of what the price is.

And obviously, they’re probably breaking a lot of occupancy laws and regulations but at the same time, you have this vulnerable population that you’re exploiting for money, and if they start complaining, they might get thrown out on the street, right? So, they can’t really do that much about it, they don’t have that much power and that’s also – it ties back into our vacancy issue things, right? If people had choice, they would be much less subject to that kind of abuse.

[0:18:02.2] GL: Yeah, you see some photos of basement apartments where their bedroom has four, five, six mattresses just on the floor, you know? It is exploitative when you say it like that, absolutely, and I think you know, it will be interesting to see what happens because we suspect that there’s going to be strong rental demand that will persist throughout 2024, right?

But if the economy slows down, if there’s a reduction in nonpermanent residents and students, and if interest rates come down a little bit, there should be an increased home-buying activity with declining interest rates and maybe that will maybe relieve a little bit of the demand we’re seeing in the purposeful rental market, that’s kind of what I’m looking to see.

If their interest rates do go down, and there’s an increase in home buying, maybe that will create more turnover in the apartment market, which will create more supply and then if we can kind of continue this increase of purposeful rental construction starts, hopefully, that will kind of alleviate the market. I’m just kind of curious though, if you had to predict it, economy slow down, increase home buying activity, would interest rates go down, what are you kind of looking at in the next year to 18 months?

[0:19:05.4] MM: It’s really hard to say what’s going to happen. Obviously, there’s going to be – especially in the next few years, a lot of government intervention in different ways that we’re going to see and that’s going to be really hard to predict. That’s going to depend on, you know public sentiments. There’s going to be a lot of issues of market sentiment. I think we’re seeing more persistent inflation than the Bank of Canada was expecting to see.

I was reading an interesting article on the model that they used to project how the economy is going to cope and how they’re revamping it because they have been persistently under-predicting inflation. So, I do think rates could stay higher for longer than the market is currently priced in but really I think the fundamental issue in the market in terms of ownership and renting is going to be that kind of the credit bubble that we’re in and the cost of debt, right?

The longer the cost of debt stays higher, the more stress that’s going to put on the home prices in the downward direction. If you get to the point where people have to start disposing of those properties, right? If they just can’t afford to carry them anymore, they’ll probably be disposing them at a lower price and that could also put some downward pressure on rents potentially but at the same time, people aren’t going to lower rents if they don’t have to.

So, I think kind of the keystone there is getting more purpose-built rental supply. If that starts coming online, if we start seeing vacancy rates go up and I think a lot of those is going to depend exactly on how favourable the government makes that environment to build, I think that would be the key thing to potentially drive rents down to a more reasonable and sustainable level.

I do think it’s not good either on the renter side or the landlord side to have such unpredictable rents. Like there are some people who have you know, owned a whole apartment building for a very long time and then rising rents benefits them but for smaller people who are, you know, companies with smaller portfolios, having that kind of unpredictability is not super helpful either.

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[INTERVIEW CONTINUED]

[0:21:16.4] GL: People think of a landlord, they think of this massive conglomerate that owns hundreds of tall buildings in metro Toronto but so many landlords are small and they have very few units, right? And this unpredictability is not good for them, right? They’re just business owners like everyone else, so that’s a great point about the unpredictability of this and what it could mean.

But it’s interesting too because you do a great job in looking at 2008, what happened in the States and what happened with their housing bubble and not to give too much away about the video, but it does look like Canada is seeing very similar signs of that happening, how we’ve been able to hold off that crash for a prolonged period of time.

Do you want to maybe get into a little bit of your research about what you saw in the States in 2008 and kind of what you are seeing now and if you think that trajectories could have been sort of similar? Because I know you touched on that pretty well.

[0:22:08.5] MM: Well, there is going to be an issue of how much the government intervenes, that kind of thing. In the US I think they kind of gave up, they capitulated and allowed prices to fall. One of the advantages that they had in the States was that or at least for the public, is that in many states, mortgages are non-recourse loans, right? So, you can walk away, you give your house back to the bank because that’s the collateral that the loan is secured against and then, you’re kind of free and clear from that.

I mean, you’ll take a hit on your credit, whatever, but in Canada, most of our mortgages are recourse loans. So, especially if they’re insured mortgages, like anywhere that you have an insured mortgage it’s always a recourse loan. It’s really only in a couple of provinces, I believe Alberta and Saskatchewan, where if you put down 20% on your home you don’t have default insurance or the bank doesn’t have default insurance on your loan, then it’s non-recourse.

So, basically, that would mean if you defaulted on the loan and your home was underwater, then the insurer, usually the CMHC, could come after your other assets to make up the difference. So, in that sense, we have a much stronger incentive to maintain that price more on housing or at least, try and slow down the, I guess you could call it a crash or the price correction because as Canadians, we tend to prefer a prolonged period of suffering over just a quick rip the band-aid off, right? We like to do it over many years but overall, like if you look at Canada versus the US, our metrics are substantially worse than the US was at the peak of the housing bubble, right? Like for them –

[0:23:44.1] GL: Yes.

[0:23:44.6] MM: Housing was something like six or six and a half percent of their overall economy. For us, it’s you know according to Stat Canada, it’s something like 13 or 14% range if you believe, I think it was a report by RE/MAX, it was something like 20% of the entire economy plus 40% of new capital formation and by any measure, it is our largest industry, right? It’s larger than manufacturing or agriculture or mining or anything like that by quite a big margin.

So, I do think that there is a lot of incentive to keep it from crashing and that’s why we’ve gotten ourselves into the situation that we’re in now but at the same time, we may be running out of room to adjust for that, right? In 2008, we could have had a price correction but we were in a better position than the States and we probably could have handled the price correction a lot better.

But instead, what we did was again, through the CMHC, extend cheap credit to everyone, right? We introduced 40-year zero-down mortgages that were insured by the taxpayers, right? And that was about 15, 16 years ago now, right? So, people who took out those mortgages then are just now reaching the point of having 25 years left on their mortgage. So really, that’s in my opinion, one of the major reasons that if you look at the chart of Canada versus the US, the US had that big correction in 2008.

In Canada, it was just a little blip and then continued going up and you know, we were in a stronger position then, so we were not really forced into a correction and now, we’ve kind of been going on for the next 15 years on cheap debt with no real major stressor that would have triggered a price collapse, right? But now, we have seen basically rapidly rising inflation. The Bank of Canada is trying to control that by raising interest rates.

And now, that has created an enormous amount of drag on household finances through interest rates because we have so much debt.

[0:25:42.2] GL: Yeah, and I would have assumed that I had been overseeing a price correction but I would have assumed a year ago that it would have been much more drastic than it actually is. I feel like home prices have actually kind of stayed a little bit more healthier than what was expected and even if we do see a price correction of 10, 15%, during COVID it was so high that to say that it’s corrected two and a four of the levels is not reality.

It’s just slightly going down from an all-time high. So, I think people were expecting or at least, those who are looking again to the housing market that it would have been a little bit more affordable at this time. Again, housing is the last thing that people hold onto, right? So, they will do whatever it takes to kind of keep that house and because of that, I don’t think housing prices, even though they are correcting a little bit, it’s still kind of way out of reach for most Canadians.

[0:26:29.5] MM: Yeah, I do think, I’d have to check the numbers again but in terms of real values and real dollars, we have seen something like 20% correction already but I agree with what you’re saying there about the house being the thing that everybody holds onto, right? In Canada, your primary residence in many ways is considered the bedrock of not just your lifestyle but also your finances.

So, people are very, very averse to selling at a loss or selling it all, like people don’t want to be forced into selling their home obviously but we have seen rising stress in other areas of the market, right? We’re seeing rising defaults on things like car loans. We’re seeing an increase in credit card debt, which suggests that you know, people are working to pay their mortgage but they’re not really able to sustain that, especially if they’ve seen a big spike in their interest rate.

But they are trying to hold on through it and they’re moving that debt around to other places, usually on higher interest forms of debt and that cannot be sustained forever, right? And we also have quite a few mortgages, you know, it’s not an unusually large amount but it is something like 900 billion dollars worth of mortgages renewing over the next couple of years and if you look at the spread between rates currently being offered versus the rates on people’s fixed rate mortgages that they already hold.

Like if you look at five-year fixed, the average rate that’s existing versus what’s not being offered by the bank is something like 270 basis points, right? The difference is 2.7%. So, even if rates drop by one percent or one point five percent, those people who are renewing are still going to be renewing at a higher rate and unless their income has caught up with it and if they have been responsible about not taking on other kinds of debt, they will probably get through it.

But a lot of people have also done things like borrowed a lot of money on HELOCs or lines of credit to fund you know, a more lavish lifestyle or just to cover other expenses, then they might not actually have that much wiggle room in their finances to absorb those extra costs.

[0:28:35.0] GL: Yeah, and I was seeing on the news, they did a story about like those who have variable rates but they have like a fixed monthly cap that they can pay and then they look at after mortgage statements, right? That actually their monthly mortgage payments is just only not going to interest, it’s not even going to the principal of the house anymore of those who took a variable rate, right? With the flat cap.

So, I don’t know how that’s sustainable either, imagine paying a mortgage but all your payment is just going to interest and then you find out that your actual time that is going to take to pay off has gone by decades now. So, it’s something to see those who had variable rates would in the next 18 months to two years holding and I know that’s why, I mean, Canada is so reluctant on what’s happening now because people had variable rates. Especially those with flat monthly payments, they’re not even paying to the principal of their house anymore, it’s just all going to interest.

[0:29:23.6] MM: Yeah, and depending on the financial institution, they may have just let them continue going into negative amortization, right? Where your payment is not only not paying off any principal but you’re actually accruing interest onto the principal every month and the really difficult thing about that is that when that mortgage renews, and you have seen all of this, so like this person has a 90 – eight-year mortgage or whatever, right?

That’s actually just kind of like getting closest to the line of negative amortization without going over, right? Once you hit that trigger rate, your amortization is infinite. You will never pay off the loan and according to, I believe it was a National Bank financial report, I have the source, I can send it to you after but they were estimating that even before the latest rate hikes, something like 80% of those variable fixed mortgages had already hit their trigger rate.

And they were like, a very substantial portion of mortgages that we’re taken out when the market was at its peak. So, there is a lot of that still looming in the economy and I think that’s part of why, as you were saying, prices haven’t dropped as much as we thought but at the same time, I think we may not have reached our new equilibrium yet, right? We may still be in transit to wherever prices are going to go.

But as you said, it’s not necessarily going to make housing affordable because we have the same number of people who want the same number of houses. What’s happening is more that credit is becoming unaffordable, so there is no money to pay the prices that people have to these houses. I think we’re going to – like if I was going to look into my crystal ball, I think if you are looking at overall housing affordability in terms of ownership, which is a compound of how much you can afford to borrow at interest rates versus how much housing costs, I think it’s still going to end up being worse than it was pre-pandemic but that can still represent to substantial drop in home prices, right?

It’s going to depend on exactly where interest rates go and how people decide to buy and sell through this period but once those lines touch, right? Once new debt is kind of the same as average debt and people are buying and selling at a more regular pace, that’s when we’ll know what prices are going to be like but in terms of affordability, that’s really neither here nor there.

[0:31:44.4] GL: Yeah, I’m so tied to the homeownership market because it’s so intertwined with the rental market and I saw an article on the Toronto Star, where the real estate agents were predicting if the interest rates actually go down, that will increase the amount of activity for people to buy a house and when there’s more activity and more interest, that’s actually going to increase the price of housing, which I don’t know if that’s a guarantee or that’s for sure.

But I don’t know how that will affect people and you know, the rates are going down but now, the housing prices are going up. So, does it actually do anything in real cash for people? So, I think that is something that I am going to be looking for in the next year or so, it’s just does the activity pick up in the housing market even if the interest rates come down a little bit. I know we’re not going to get pre-pandemic levels of interest rates.

But if it goes down at all, prices are going to go back up. So, I think that’s the last piece of this and I am looking forward to seeing and the housing market activity goes up, hopefully, that creates more turnover in the rental market, which will create more supply. That’s the last missing piece I think I’m really going to monitor over the next year to 18 months.

[0:32:45.7] MM: Yeah, and it will be interesting to see how that market sentiment interacts with the actual real cashflow issues of it because we see basically a lot of realty associations and individual realtors saying that as soon as interest rates drop then prices are going to shoot up. There may be buyers who rush into the market when they see that first drop and say like, “Oh, I want to get in before prices go way up again.”

But whether or not they’re correct is another question, right? When the Bank of Canada essentially started their rate pause and stopped raising rates, then we did see people almost celebrating that as though it was interest rates going back down and you saw some people kind of rushing back to the market and say like, “Oh, well, it’s never going to be cheaper than this” right?

And so in 2023, we saw prices rise up until about the middle of the year, and then through the back half of the year, if you look at the overall Canadian home price index, it’s back down to where it was at the start of the year. So, that could just be a little market sentiment bump on the way for the down and what happens when rate cuts start, you know, prices could go back up but we would have to see, you know, where that money is actually going to come from, right?

The money has to come from somewhere. Previously, it was coming from cheap lending, and now, if we’re saying you know, one rate cut like 25 basis points is going to cause prices to shoot back up, well, who’s money is that? Where did they get it from? It has to come from somewhere and if there’s not enough money to increase the prices of housing, then like I’m sorry but prices are not going to go up.

So, yeah, I am also interested to see exactly how that market sentiment versus cash flow plays out. My guess is that we are going to see more of a decline, not necessarily like sharp but possibly even just like a longer-term stagnation in prices as their real value is eroded by inflation, similar to what we saw in the 90s, right? Where prices kind of you know, they dropped a bit not as much as people would have thought, but then, they kind of like did this very slow grind lower.

If you look at the real home price index, they lost quite a bit of value. It was between 20 and 30% and right now, we’re sitting at about 20 and people are considering this like, “Oh, prices didn’t really crash.” You know you are just comparing to the peak but that was considered one of the most painful corrections in Canadian real estate in living memory, right? And it did cause a lot of financial damage to a lot of people and it’s not just about you know, what happens in the long-term because all of this is leveraged investing, leveraged money. So, what happens in the short to medium term is actually very important for a lot of people in terms of their overall finances.

[0:35:30.6] GL: I’m sure you and I could probably talk about this for many more hours but maybe to spare our listeners, if we can kind of wrap it up in just saying that if people are interested in your content, I would assume a lot of our listeners do follow you but if they haven’t, how can people follow you? How could people see what you are up to and to kind of continue this conversation on your channels?

[0:35:50.9] MM: Yeah. So, I’m Millennial Moron on most of the major platforms, so you can find me on TikTok, YouTube, or Instagram for all of my video content. If you want to see more about what I’m thinking about on kind of a day-to-day basis, you can follow me on Twitter or X or whatever you want to call it. Those are all the easiest ways and you know, if you go to any of those sites, you will see a link in my bio.

That will link you to all of the other platforms, as well as some more information like media appearances that I’ve done or some of the spreadsheets that I’ve put together for these videos if you want to go and review that or even use it to kind of run your own scenarios.

[0:36:28.0] GL: Yeah, and to all of our listeners, like I truly implore you to seek it out because I find that there is very few people in this sphere who have a mix of being approachable, they give you the data but they give it to where we can understand, they know what they’re talking about but they also add a little bit of humour and levity to it, which is kind of I think why you’ve taken off so much is because you’re not just another guy reading data.

You’re doing it in a way that offers some perspective, offers some humour, and ultimately, it does educate people, where if we follow your content, you’ll actually learn a little bit more of what’s going on as opposed to just being fed all this data. So, we really love your content man, and we really appreciate you coming on today because I think what you’re doing is really an important thing.

I think it actually educates Canadians and I don’t know, I do think policymakers are aware of what we’re doing and content creators like yourself and podcasts like this and rent reports that people are reading and sharing on social media, I think we are going to make a difference because we’re everyday Canadians who have something to say and we know what we’re talking about.

There’s enough information online for us to sort of educate ourselves and then, in turn, educate those who follow us. So, thanks so much for coming on today and truly, we do love your content.

[0:37:37.1] MM: All right, thanks for having me.

[0:37:38.9] GL: And thank you all for listening. Make sure you subscribe, rate, and review the podcast wherever you listen. Until next time.

[END OF INTERVIEW]

[0:37:45.1] ANNOUNCER: You’ve reached the end of another episode of Sync or Swim. Make sure to visit us at rentsync.com/podcast to access show notes, key takeaways, and where you can sign up to our newsletter to receive free bonus content. If you found value in the show, please also remember to rate, review and subscribe. Don’t forget to join us next week for another episode. Thanks for listening.

E79: The Millennial Moron Guide to Canadian Real Estate

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