Fancy A Fix?

These days it seems like a lot of people are wanting a quick fix. From the junkie on the streets, to almost everyone in a profession related to housing, we all want a fix.

But, before we can fix anything, we need to figure out what exactly is broken. You cannot fix A PROBLEM IF YOU DO NOT KNOW WHAT THE PROBLEM ACTUALLY IS.

Almost every single day we are bombarded with articles, insights, opinions, and musings about how the housing market is ‘ broken’. I think we can all agree that the housing market in Canada is not what it used to be. We often hear about the health of the market – like housing somehow stops in at it’s doctor on a monthly basis for a check up. We are told by countless politicians there is a problem – although that is all the politicians can agree on, before the finger pointing starts as to who’s to blame. Are we really still blaming Stephen Harper? Okay, so we know there is a problem. We all agree on that. But, and think this one over carefully, what EXACTLY is the problem? And, more importantly – what is the SOLUTION to the problem.

Housing is like any other market or commodity – it reacts to economics, supply and demand, and a multitude of factors that are far reaching and beyond this writer’s ability. Housing is a living, breathing market that changes daily. For 150 years it worked well, accomplished the main goal of providing shelter, yet now it is suddenly ‘broken’?

So, what went wrong – and how do we fix it. If I had all of those answers I would be running for office in the upcoming election. I don’t have all of the answers, but I think I can take a look at something that we often don’t see a side of.

When I say housing, the first thing that should go through someone’s mind is a home. A home, possibly with 3 bedrooms, a nice little ensuite bathroom, a yard for the kids to play in, and some character. A place where you leave every morning to go out into the world to stake your claim, and where you return to every evening to sit and enjoy a meal with your family while you all talk about your day. A place where you watch your kids grow up, you walk alongside them through their trials and tribulations, and eventually, after toiling for years, and building some equity – you sell the house to the next family with big plans.

However, this is not what housing is these days. Canadian housing has been weaponized. It has been turned into a commodity, where it can be bought, sold, traded, and flipped to the highest bidder. It is a securitized asset where upon thousands of lenders, banks, private money, mortgage investment corps, and credit unions trade you cash in hand today. Housing has become an ATM with an instant withdraw button ready to finance the lifestyles of the rich and famous. Pre con homes have become akin to a lottery ticket. We have bought, sold, sliced, tranched, levered, and flipped homes in perpetuity for the last 15 years. We have turned housing into a weapon of financial mass destruction.

Houses are now starting to become a noose around the neck of homeowners. With increasing interest rates, sky high payments, and ever increasing property taxes, housing is quickly becoming a status symbol of the rich. Housing has flipped from a family’s largest asset, to their largest liability.

For years I have listened to people tell me how it is all related to supply. There simply isn’t enough supply. Okay, sure. Lets explore. As I type, there are 7490 properties listed for sale in Toronto. If I expand to all of Ontario, the number jumps to 54,147, and Canada wide there are over 162,000 listings. This is well above averages for the last several years for September. While we could always use more supply, it appears there is plenty of homes available for purchase.

Next people will blame immigration. Too many immigrants all of a sudden flooding the market. Yes – immigration has been on a tear lately, and there is over 1 million new people a year coming into Canada. The average Canadian family has 3.8 people per household, however, typically an immigrant family will have closer to 5.6 people per household. Assuming that 66% of the new immigrants were to buy a house ( this is the Canadian average ) that means that we could house every new immigrant this year with the currently available listed inventory, with about 44,000 homes left over to house existing Canadians based on the current supply. So plenty of supply.

Next we move onto higher interest rates. Ah, that is likely the problem right? Well, as anyone in this business knows, most people in the housing market today were stress tested for rising rates as they took out their mortgages. Most of the stress tests went to 5.25%. Now I know rates are over that now, however the stress test should have taken a large amount of the shock out. Of course the stress test wouldn’t solve all the problems, but it should be blamed for all of the problems either.

So if it wasn’t supply, it wasn’t immigration, and it wasn’t higher rates – then what is the problem with the housing market? Well, you see, there is not a problem with the housing market. Yep I said it. The housing market is simply reacting to other issues in the economy. The housing market is the symptom, but it isn’t the problem. Much like a person with high blood pressure, the blood pressure isn’t the problem – it is the symptom. High blood pressure comes from poor lifestyle, unhealthy eating, stress, lack of exercise, etc. etc. Canada’s broken housing market is the symptom of larger problems.

In order to fix housing we need to deweaponize it. We need to stop treating housing like a financial instrument. We need to stop living lifestyles financed by our home. We need to go back to treating our homes as a place to live, a place to build a life, and a place to raise our family. In 2020 I made a comment on social media that your house makes more a year then you do. It was true. Houses were gaining so rapidly they were outearning the person who owned them. It was Canada’s tulip frenzy. Today, we are now paying the price for the party in housing. Much like the person who drank heavily the night before, the Canadian housing market went on a bender, and now needs to recover.

I find it funny how we always hear about the ‘ housing market’ but never the ‘home market’. I bet if we were to start treating houses like homes, we would magically solve the housing crisis that Canada finds itself buried in. While treating a house like a home, and living within your means might actually work – it sure as hell won’t get a politician a vote, so don’t expect to hear about it that fix anytime soon.