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Who do you trust for financial advice?

Who do you trust for financial advice? Recently some real estate bears (those who think the market is going to crash) have been getting very excited about the stats from the Toronto real estate board in the last few months. They see that sales are down and listings are up, but there are many things that they fail to report on about the market. Listen to this episode and discover at least 15 reasons why the market is not going to collapse, and is actually just returning to normal.


2:08 Discussing the article “Canada’s Entire Housing Market Is On the Verge of Collapse”
8:12 Real estate bears still claiming the market will collapse.
9:13 Comparing inventory from 2016 to this year.
17:29 What Real Estate Bears fail to see
29:30 Real Estate Bears talking about the market.
31:20 Difference between American and Canadian mortgage arrears.

Related Links

The article that inspired this podcast: Canada’s Entire Housing Market on the Verge of Collapse

An insightful article from fellow Toronto Realtor Scott Shallow on the current market: Toronto’s Downtown Real Estate Market Will Not Fail Anytime Soon

Click Here for Episode Transcript

Andrew la Fleur: Is the market going to crash, or is the market going up? Well, it depends who you talk to and who you trust for financial advice. We’ll talk about that on today’s episode.

Announcer: Welcome to the True Condos Podcast with Andrew la Fleur. The place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Welcome back to the show, and thank you so much for tuning in once again. It’s Andrew la Fleur here, and I hope you’re enjoying the summer. We’re recording this episode in August 2017. Let’s jump right into the topic. As I said in the intro, and the title of this podcast, “Who do you trust for financial advice?” I think it’s an important question to ask, especially right now when the market is in transition, and after a very, very hot run, the market now, overall market of course, we’re not talking about the downtown condo market, I’m talking about the overall real estate market for the GTA, showing signs of slowing down the past few months. The introduction of the foreign buyer’s tax a few months ago seemed to trigger a series of events, and now the market today is quite different than it was a few months ago.

You’re getting all sorts of headlines and all sorts of chatter from the real estate bears, those people who believe that the market is going to crash, as opposed to the real estate bulls who have been dominating the discussion for the last couple of years as the market has been going up. Now it seems it’s the real estate bears turn in the spotlight, and they are relishing the moment. They are active on social media, and they’re happily throwing statistics around that they believe show that the market is about to crash.

This episode was partly inspired by one of those articles and one of those pieces of media that was put out by one of these real-estate-bear types. It was sent to me on email, and I’ll include a link to it if you want to check it out in the show notes for this episode, which you can get at Basically, the article, the headline is pretty self-explanatory, “Canada’s Entire Housing Market is on the Verge of Collapse,” says the headline. It’s on the verge of collapse. Sounds pretty scary, right? The housing market for the entire country is on the verge of collapse, they’re claiming.

It’s interesting, when you look at this article like many of the articles out there, so many times the people who are writing it, the people behind these articles, the people behind this type of thinking and this way of looking at the real estate market, is people who are selling financial products. It’s quite obviously just the inherent bias to it. You need to understand as you’re investing in real estate, as you’re studying the market, and as you’re reading if things from different sources, which, of course, you always should do, you should look at different opinions from different people.

Don’t just listen to what I have to say, although please keep listening to the podcast, of course. I really appreciate your support. But so often is the case that if you look behind the headline, who’s writing the article claiming that everything is going to hell in a handbasket and the market’s going to tank, and everyone’s going to lose their shirt, and prices are going to be down 50% or whatever it might be, it’s almost always a financial-related company backing it who is selling financial products. They want you to put your money with them to invest as opposed to, in real estate markets, they’re trying to use scare tactics to scare you away from buying real estate, investing in real estate. Many times they have books to sell, seminars to sell, courses to sell, and so there you go. Obviously that is always important to check the source. In this case, like I said, it’s almost always that they’re selling financial products, so it is what it is.

But yeah, again, who do you trust for financial advice is what I want to talk about. When you look at this specific report, the entire housing market on the verge of collapse, and they bring up a couple of stats from the past couple months; sales are down, inventory is up, the number of homes available for sale is up, and they’re saying prices have come down in the past couple of months compared to what they were a couple of months ago. There you go. The whole thing is all going to crash and it’s all over, the party’s over. It’s going to be just an absolute … There’s going to be blood in the streets, and it’s going to be terrible.

There are many things, however, there are many things that these real-estate-bear types fails to mention, fail to see, fail to report, fail to bring up, whether it’s on purpose or whether they just only look at the things that support their belief. Who knows? Probably it’s a little bit of both. But my point with this is I want to talk about a list of things. I’ve got about 15 or 20 things here that I just brainstormed off the top of my head reading this article and thinking, “Well, what are they … ” Yes, it’s true that sales have come down. Yes, it’s true that inventory is up. Yes, it’s true that prices have come down as an average overall for the market from a couple of months ago until right now, but what else is going on here? There’s, of course, many things also happening in the market that they are failing to mention, and many reasons why, I believe, the market is not going to collapse, and the market will continue to be strong.

Essentially, the fundamentals of the market remain the same, and there is no reason to believe that the pattern that has been happening in the market for the last 15 years will not continue. That is continuous upward growth. Again, I’ve said many times on the podcast I am not here to tell you that real estate prices always go up. I’m not here to tell you that rental prices always go up. But I’m here to simply point out that there’s nothing … If you dig beneath the surface, there’s nothing to lead us to believe that the pattern, which is well-established over the last 15 to 20 years in the greater Toronto area, of continued growth will not continue.

Sure, there may be blips along the way. Sure, there’s ups, there’s downs. There are changes in the market. It’s not a continuous upward path forever. That’s not how the market behaves. But as Brad Lamm and other people have noted many times over the last several years, in the absence of a recession, in the absence of a major decrease in jobs and job growth and wages, and in the absence of much higher interest rates, the pattern will continue. That’s the fundamental concept here, is the fundamentals of the market have not changed, and the pattern will continue.

As I said, I’ve got about 15 or 20 points here. I probably won’t go through every single one in detail, but there’s three points, three sort of key points that I want to point out to you. These are the three key things that the real estate bears in this article and other articles like it that are proclaiming the collapse of the market is upon us, or is happening, or is about to happen. These are three things that, again, are just very important points to look at it. If you’re in the camp that thinks the real estate market’s going to collapse, or if you’re tempted to believe that, or if you’re being wooed by these types of articles that are out there, coming into your inbox or on your social media, or wherever you’re seeing them, again, these articles and the people that are writing these articles, they’re failing to mention a lot of things.

Here are a few important ones to remember. Number one is, especially in this article, they’re saying that the inventory is up dramatically. That is a very important number, obviously. The number of homes available for sale is up dramatically from last year, 2016, to this year. Yeah, that’s totally true because the inventory levels in 2016 were at historic lows. The number of homes available for sale last year and for most of the past year has been unbelievably low. It’s been a very unusual time in the history of the real estate market over the last 50 years, and nothing like this has every happened before. So inventory is up, yes, but that’s because it’s coming off of historic lows. If you look beyond last year, which, again, is something that these guys don’t like to do because it doesn’t fit their case that they’re trying to prove. But, what do you know? I did take the time and I looked beyond last year, and very quickly see that the inventory levels today are very much on par with the normal inventory levels over the last five or ten years in the GTA.

In fact, if you look, again, you don’t have to go back very far, you just go back over the previous five years to this year; look at the previous five years to this year and you’ll notice that the number of homes available for sale today in 2017 is actually less than three out of the last five years. So three out of the last five years previously we had more homes available for sale than we do right now. We had more homes available for sale in 2012 at this time than we do right now. We had more homes available for sale in 2012. So five years ago, when the population of the GTA was approximately 500,000 people less, half a million people … Are you listening? Half a million people less in this region, approximately, and we had more homes available for sale than we do today. Does that sound like a market that’s about to collapse? I don’t think so.

Again, and that’s just not one year. If you look at three out of the previous five years, there were more properties available for sale than there are today. The population today is much higher than it was in the previous years. We have more people, we have less homes available for sale than three out of the last five years. What happened over those previous five years? Prices went up. Prices went up when we had more inventory than we do now. Okay? Again, if we had a situation where inventory was 20%, 30%, 40%, 50% higher than it has been over the last five years or ten years, that would be definitely a cause for concern. Inventory levels would be shooting up way beyond what is normally out there. Even though the population growth has been significant every year, that would be a cause for concern. But that is not the case. Yes, inventory levels are up significantly from last year, but again, last year was an anomaly. Last year was a historically low year, and last year low inventory numbers produced 30% price increases, which, again, let’s talk about that for a moment and shift gears.

The 30% price increases that we’ve been seeing over the last year, again, were an anomaly, were not something sustainable. I’ve been on record on this podcast and on the blog and on videos many, many times over the last year warning and advising and telling people not to get used to 30% price increases. That is an unusual situation. That’s not normal. Sure, it’s fun and it’s great at the time while it’s happening if you own property. It’s a nightmare if you’re a buyer. But I was making the point of saying this is not normal, it’s not sustainable. Price increases will come back down to more normal levels, which is single-digit price increases, 5% to 10% range is a fairly healthy number, although the long-term average for the GTA is about 5% to 6% over the last 50, 60 years, so seeing numbers in the high double-digits, not sustainable, not normal, shouldn’t expect it to continue, would be a terrible situation if that continued, and creates a situation where gravity sets in.

When prices rise so much in such a short period of time, naturally a large percentage of the market is simply priced out of the market, they simply cannot afford to buy anything, demand naturally curves off. Supply will naturally go up. As people see record prices, they’re naturally going to think, “Okay, well, now’s the time to cash in.” And those things have happened, and those two things happening will result in a slowdown of those price increases, and that’s exactly what we’re seeing; we’re seeing a slowdown of those price increases. Prices are still up compared to a year ago, but now they’re only up around 5% versus a few months back prices were up about 30%, 33% over the same time the year before.

Again, gravity is setting into the market. Another side point which I put out on Twitter and some people found interesting and thoughtful to consider, that is, some people are looking at the numbers and they’re saying the average price has come down in some pockets, say 20%. The average price has come down 20% in the past few months; the average price of a home sold in March or April compared to the average price of a home sold in July. Again, seasonality has a lot to do with that. Prices always come down every year. They peak in the spring, and they go down in the summer. That’s a normal thing that happens. But prices, they’re saying, “Look, prices have come down 20%. Wow, this is crazy. Prices are going to collapse.”

Again, what they fail to realize, what they fail to mention is what happened right before that. Well, right before that, prices went up 30%. They went up 30% in a very short period of time and now, depending on how you look at the prices, you’re arguing that prices are going down 30%. Up 30%, down 20%, and they’re saying, “Look, this is a collapse. Prices are down 20%.”

Well, I made the point on Twitter of saying, “If something went up in price by 3%,” just drop the zero off the end, “If something went up in price by 3% and then subsequently, shortly after that, it went down by 2%,” so up 3%, down 2%, “Would you describe that market as collapsing?” No, you wouldn’t. You would just describe that thing as, “It went up a little, it went down a little. It’s back, pretty much, to where it was. It’s still up from where it was, but it’s pretty much just a little bump, a little anomaly. Things went up a little, and then they went down a little.”

If you wouldn’t say that a market that goes up 3% and then down 2%, you wouldn’t say that’s a collapse, then why would you call a market that went up 30% and went down 20% a collapse? It’s not a collapse, it’s simply returning to normal. It’s simply returning to where things typically were, where things had been for the past 50 or 60 years. Again, the average price increases in GTA is about 5% to 6% over the last 50, 60 years.

Okay, so getting back on track to what the bears are failing to mention. We talked about how they’re not looking beyond last year, they’re just looking at this year versus last year. Another thing that they’re failing to do is, they’re not looking at the rental market at all. They’re simply looking at the stats that TREB is putting out on sales. They’re not analyzing the rental market, and they’re not acknowledging the fact, and the reality is that the rental market and the for-sale market, it’s all one housing market. People need a place to live whether they’re buying, whether they’re renting. It’s all connected. Everything is interconnected. You need to look at the whole of the market to get a sense of what’s happening in the market and where the direction of the market is likely heading; whether we have a shortage of places to live, or whether we have a surplus of places to live. When you look at the rental market, again, as I talk about constantly, almost every single episode here, the rental market is absolutely on fire.

You do see some headlines out there, Bloomberg put out an article about, renting is a nightmare in Toronto, and it is. Rental prices are up now, I just looked at the latest statistics, hot off the presses, they’re up now. The biggest number that I have seen ever is, the current rental rates are up 13% for downtown; the downtown core for condos. The downtown core, which is sort of the biggest rental market in the GTA, which is a good indicator of what’s going to happen or what is happening in the overall market. Rents are increasing at an annualized rate of 13% in the downtown core. 13% year over year. Again, typical increases are around 1%, 2%, 3%, something like that. That has been normal over the past five to ten years. We are now at 13%. We have been in double-digit territory, 9%, 10%, 11% for the past, almost a year now, not quite. But this is the biggest number that I have ever seen: 13%.

There’s a major rental shortage, no question about it. There’s nowhere to live. So if you’re not going to buy something, you’re going to rent something. Again, these markets are all interconnected. If rents are increasing at 13% year over year, if vacancy rates are at historic lows, it just is illogical to think that the real estate market is going to crash. It makes no sense. Rental prices are rising so quickly because there’s nowhere for people to live. Okay? The alternative is to buy something. As rental rates continue to increase, it will push more and more people into becoming buyers because they’re going to say, “I’m paying more, and more, and more rent. It’s starting to make more, and more sense for me to become a buyer instead of a renter.”

Or, if that doesn’t happen and people just decide, “You know what? I’m going to … ” More and more people decide to rent, it’s just going to make the situation better, and better, and better for investors, and more and more people will be buying properties, especially condos to rent out, because as investments, those are going to make more and more sense as rental prices continue to increase at double digits.

Again, it’s not how most people think. It’s not the level of analysis that most people do, but this is the level of analysis that you have to get to if you want to be a successful condo investor. If you want to make money at this in the long-term, you’ve got to see the trends before the people on the streets, so called, understand what’s happening. If you look at how quickly rental rates are increasing and how this has been going on for almost a year now and how this is likely to continue over the next year, then you quickly can extrapolate rental prices two, three, four years from now are going to be shockingly higher than they are today.

People are going to wake up four or five years from now and realize how expensive it is to rent in this city and they’re going to say, “Frig. I should have bought more property four, five years ago, because look at the cap rates. Look at the return on investment you can get if you had bought three, four, five years ago on these properties. If I had known that rental rates were going to be as high as they are now, I would have bought more three, four, five years ago.”

That is why I am buying today, and that is why my clients are buying today, because they understand where rental rates are going because they’re looking beyond the headlines, they’re analyzing these things, they’re checking out the stats, they’re listening to this podcast, and they’re educating themselves on the reality of the market instead of just listening to the alarmist and sensational headlines like in this article that’s kind of inspired this post: “Canada’s Entire Housing Market is on the Verge of Collapse”. Interesting.

Let’s continue on. Another thing that’s related to the rental conversation is the rent-to-price ration in Toronto still is some of the best from an investment perspective of any major North American city. If you look at the rental price to the sale price. Now, a lot of bears will point to that and they’ll say, “It’s really bad. You can’t buy a property and get positive cashflow in Toronto, therefor it’s a bad investment, therefor prices are going to fall.” But, again, what they fail to see is, when you compare Toronto with other cities in North America, other major cities, it’s actually some of the best rent-to-price ration from an investment perspective than any other city around.

Again, I was interviewed, the Scalena Brothers on a recent podcast from Vancouver. You can listen to that. We had a conversation off-air about investing in Toronto, investing in Vancouver, and they were shocked at the rents that you can get compared to the price that you’re paying for condos in Toronto. They said, “Wow, that is so much better than Vancouver. That makes so much more sense as an investment than Vancouver. What do you mean you can actually get positive cashflow still in Toronto with 20%, 25% down? That’s pretty much unheard of in Vancouver.” This is their comments as our fellow Canadians in the other major real estate city in Canada: Vancouver. This is not from my lips, this is from theirs coming from Vancouver where their market is very hot right now and their market is doing very, very well. They’re saying Toronto is a standout. Toronto rent-to-price ration is excellent. It’s much better than it is in Vancouver.

If you look at New York, if you like at Los Angeles, San Francisco, if you look at the major cities in North America and you put Toronto in there and you say, “Wow. Actually, you know what? Toronto is a big city. It’s a growing city. It’s a world city. But you can still buy places downtown at an affordable price. You can still buy places with 20%, 25% down and get positive cashflow, and you’re seeing tremendous rental growth. It’s a great place to invest. It makes sense for the investor. It still makes sense for the investor. And investors are looking for places to put their money. Money is going to continue to go into Toronto real estate. Not all Toronto real estate, of course. I’m not talking about detached home in Richmond Hill as a rental property. No. We’re talking about downtown condos, primarily. They still make sense for investors, and that’s where the growth is happening in the market, and that’s why we invest in downtown condos and why I have been for the past decade.

Also, conversely, if you’re a renter, and again, we talked about this a minute ago. If you’re a renter, you’re looking at the amount you have to pay in rent versus the amount that you would have to pay if you owned the place, it still makes sense to buy as well. If you can, you should buy and you should not rent, because you landlord is making money off of you. If you can get your 20%, 25% down, you’re better off, in many cases, your monthly outlay is less if you own the property than if you are renting it. Again, this is shocking news to a lot of the real estate bears who just look at average prices and average rents across the entire market and they say it’s a bad investment, it’s not cashflow positive. Again, they’re not doing what we do. They’re not peeling back the onion. They’re not peeling back the layers. They’re not doing deeper analysis. They’re not looking for the opportunities that exist in the market. So they’re making conclusions, and they’re writing their headlines based on that, and they’re saying, “It’s a bad place to invest.”

Well, sure, it’s a bad place … Again, if you’re buying that detached home in Richmond Hill for $2 million and you’re renting it out for $3,000 a month, duh. Of course that’s a bad investment. Of course that doesn’t make any sense from a rental property perspective. But if you’re buying that downtown condo for $500,000 and you’re renting it out for $2,500 a month, and three, four, five years from now that $2,500 a month has a chance to be $4,000 a month if rental appreciation continues. But even if it doesn’t, you’re still doing well. That’s what we do. That’s what the real estate bears don’t.

I have been going on here for quite awhile. We’re approaching the 30-minute mark on the show. I’ve really only covered three out of my 15 points I wanted to talk about. Other things I’ll just touch on very briefly, what else the real estate bears are failing to mention. GDP job growth: so the economy in the GTA is very strong. Office vacancy rates: office vacancy rates are the lowest in North America. If you have a company and you’re looking for a place to put that company, especially in the downtown core, good luck. There’s nothing out there. Rents are rising. We have the lowest interest rates in 50 years. Money is cheap. Money has been cheap for many years, and I am a strong believer that interest rates will continue to be low. I’ve talked about that on the podcast many times.

Population growth: the city is growing. Again, especially people who, like, this one here writing about Toronto from the states, or from other provinces in other places in Canada that these people are not in Toronto. They don’t understand what’s happening in the city. They’re not living it and breathing it. They don’t understand what it means to be in a city that’s growing. Most cities in North America are not growing at the rate, even close to what Toronto is growing at. Again, another subject we’ve touched on so many times, how unique Toronto is, just for the fact alone that it is growing, and that it is growing at a very fast rate. Very unique to any city in North America.

What else do they not talk about? They talk about the market overall, but they don’t look at the condo market, which is the fastest growing part of the overall market, and they don’t understand that condos are the future. They don’t understand that Ontario has a growth plan, that new low-rise housing is soon to become an extinct sort of a thing, and everything is going condo. Everything is going up and not out. We are rapidly urbanizing as a region. When you look at the condo market, the condo market is a seller’s market. We have some of the lowest levels of inventory. We have the lowest level of inventory in the condo market than we’ve had since 2009; lowest level of supply. Again, this is something they don’t want you to hear. This is something they don’t want to put into their headlines because it doesn’t fit their story, but the condo market is incredibly strong.

They don’t talk about the fact that the new condo supply, which Urbanation reports on, and others. Urbanation just came out in their report, “New condo supply available is at a 15-year low.” 15-year low for new condo supply. This is our future housing supply.

What else? We talked about … Sorry. Just looking at my notes here. Mortgage arrears: so, again, a lot of these headlines about the market collapsing. It’s all about this, “What’s happening in Toronto and Canada is what happened in Florida in the US 10 years ago. Canada is finally going to get their version of this.” This is a lot of the rhetoric that’s out there. Again, one of the things that is dramatically different from the US experience and the Canadian experience is the mortgage arrears. Mortgage arrears are, basically, close to 0% in Canada and in the GTA and across the country, and they have not moved from that zero line for the last 10, 15 years. They’re just always extremely low; close to zero; less than a percent.

You look at the mortgage arrears, people who haven’t paid their mortgage, who are behind on their mortgage payments in the US, leading up to their crash they shot up like a rocket. People stopped paying their mortgages like crazy, and that was a huge reason why the market collapsed. And a huge reason why people stopped paying their mortgages was because, this is another point, is because their mortgage rates went up dramatically. Their mortgage rates went up dramatically because they had this subprime lending where they got these teaser rates for a year, extremely low, then, after that, the rates jumped up huge and, of course, they could not even really qualify for the mortgage in the first place for the low rate. They certainly couldn’t qualify for the much higher rate. People stopped paying their mortgages. This was what was happening in the US. Again, this is not what’s happening here.

In fact, another point, we have some of the strictest lending policies and practices in the world. Have you tried to get a mortgage lately? Have any of these bears ever tried to get a mortgage in Canada for an investment property, let alone your principle residence? It’s extremely difficult. It’s much harder today than it was six months ago, a year ago, five years ago. It’s becoming harder, and harder, and harder to qualify and to get a mortgage in Canada because our banks are prudent. Our banks are doing things and taking extra steps to ensure that buyers can make their payments. That never happened in the US, and it was quite the opposite experience in the US where all kinds of people were getting mortgages who certainly should not have gotten them.

There you have it. I’ll leave it there. Just a whole bunch of things for you to think about and chew on as you’re thinking about where the market is right now. But again, the point to hit home is that the market is very strong. The market is not going anywhere. We are certainly in a transition right now. We are certainly in a period where, after increases of 30%, which are completely unsustainable, we are returning to a more normalized market, and the market may be a bit bumpy as an overall comment for the next few months. But the condo market certainly is still very strong, very much a seller’s market. Prices are still rising quite significantly in the condo market. That will likely continue as well in the months ahead. Hopefully, the market overall in 2018 will return to a more normalized level with single-digit price increases and more normal inventory levels across the board.

Okay, there you have it. I’ll leave it there for now. I hope you enjoyed this episode. Until next time, happy investing. We’ll talk to you soon. Bye.

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