5,000 unsold condos, 40% price drops, and a city going under | Ron Butler on Canada's housing crisis

Toronto is the epicenter of problems.BC is in not good shape at all and potentially will get worse.BC just might be a year, a year and a half behind Toronto in the problems.So, the essence of it is a dysfunctional housing market and particularly a complete madhouse when it comes to new construction condos.Like, I'll give you an idea.So, condos in 2021 for high -rise condos, they were selling like hotcakes.

They were just flying off the shelf.Virtually no one who bought them ever expected to close.They thought they would sell them through assignment.They thought they would just flip them.Never have to close, certainly never have to get a tenant.And in 2021, they were paying $1 ,300, $1 ,400, $1 ,250, like $1 ,600 a square foot for a little bit bigger than a dog crate condo, or maybe just a dog crate condo on a great famous street.

That was going on.And today, today, the clearing price, the rock bottom, you got to buy wholesale kind of clearing price for those condos is about $745 a foot.So we're talking 40, 50 % losses and probably about 5 ,000 just brand new units sitting around unsold because nobody's buying them.But we will see some more clear soon because there's been some vulture funds being formed to suck up the market.last remaining hopeless situations that developers are in.And on the West Coast, you guys just had a developer go into receivership on a big project, just couldn't finish that.

We think all of ours are going to finish in Toronto, these high -rise condos, but it looks like you're in a situation where one of them is not going to even finish.It's going to be like unfinished condos.And they went to receivership last week.

Yeah, we did.about it for a while here on the show that the cranes are coming down, especially in Kelowna, the cranes are coming down, they're not going back up.And that's the thing, a lot of the pre -construction stuff finished.And a lot of pain for people that bought pre -construction because the mortgage interest rate obviously changed as well, right?You went from a bank account rate of 0 .25 to five, and then a lot of people that qualified You know, and the 0 .25 Bank of Canada rate don't qualify.And I know personally quite a few people that didn't qualify when the rate changed and it's time for possession, which was, you know, three years later.

And the sad thing is, is not only do you lose your deposit, but you could literally be on the hook for the difference when they go to sell that property.And I think that's what a lot of people are, you know, like stressed about.Not only do they lose that deposit, which in most cases was 20 percent because it was a second property on these preconstructions and something that it was pretty tough pill to swallow for many people.

Well, I'll tell you in Ontario, it is it is generally expected they will seize your deposit.If you don't close on your new construction purchase, the developer will seize your deposit and the developer will litigate you.They will go after you for any difference.And that's been very clearly spelled out here.

And you have that specter hanging over your head because it's not until they sell that property.Do you know what you're on the hook for for the difference?Right.And then, you know, And then when more and more units come on that can't sell, obviously that drives the price down even further, which is kind of like...

It's the unbelievable mess for some people.Now, we've always got to emphasize, it's not an unmanageable number of people are in this fix.It is an incredible amount of wealth destruction that's going on.There is no question of that.But there's probably no more than about 10 ,000 of these purchasers who are in this deep, deep catastrophe right now, maybe 15 ,000.But it's a true catastrophe.

It is like lose everything.Like,you've got to think about whether they're going to go after you're, you're obviously you're refined a house, you refinance the house to be able to put the down payment on the condo.And you got to be concerned that they don't just go after you on your existing house, which is also declined in value.So yeah, it's for the people who are involved.It's pretty awful.

And then there's another component to this, and that's the mortgage resets during COVID.That rate, like I said, it was at 0 .25, the Bank of Canada rates.A lot of people are getting mortgages, like five -year mortgages under 2%.And now that's all starting to mature as well.So now we're looking at the great reset or whatever you want to call it.But these resets are, remember when Tiff Macklin said, I'm sure you've said this, Tiff Macklin said to go out, take that mortgage, rest assured you go out and take that mortgage.

We're not going to be raising interest rates.in the foreseeable future and then did an unprecedented fashion, they raised them 19 fold.And now a lot of these people are doing their resets.And, you know, people, if you don't have to qualify again, like some people are trying to change it to a 30 year amortization, and then you have to requalify.And then a lot of people finding themselves, you know, I think the stat is half the Canadians are about 200 bucks away from their breaking point.And those refinances are, like a lot of them are, you know, $1 ,500, $2 ,000 more than what they were paying before.

Well, they're on average, they're between 18 and 25 % increase in payment.So, but which is very meaningful.It is five years down the road though.So hopefully people's incomes have gone up a touch, but yeah, very meaningful.What we're observing is that not too many of those are getting into real trouble.They're not going into delinquency.

Those increases from, as you said, they were had a, rated about 1 .69 % five -year fixed and now they're faced with 4%.That does not create a double onon payment, though.So like I said, payments about 18 to 26%.But it sure does mean that they're in a financial constraint, like there's going to be no, you know, trips to Disney World.Okay.

That ain't happening.There's going to be no, uh, we're not going to be doing any big renovation of our property.So it all just leads to further economic down drafts in Canada because people, people can handle the increase in the, in the payment, but they're going to cut back somewhere else and they are, and that's just the way it goes.

How much of this problem was created by the, the rampant immigration that we've seen over the past few years?And, you know, people buying rental, they're thinking they're buying rental units and obviously the housing, all these things.And then they kind of pull back on that.And then and then obviously the interest rate increase.It's just like everything that could go bad went bad at the same time.

It is without doubt the most perfect catastrophic storm you could ever imagine.So many elements just working against people.It's it's massive today.The number one city in Canada for mortgage delinquency, mortgage defaults and court action on taking your house away and giving it to the lender is a city called Brampton, which is north of Toronto.And it's a large city.There's like more than a million people there, if I recall, like 900 ,000 million people.

And they're experiencing in some cases, depending on the neighborhood, 40 % price drops on full -size homes, not condos, like on 33 ,000 square foot unit 3000 square foot to semi single detached homes.They're getting just destroyed becausewas a city where many, many residents went all in on student housing, which was for all practical purposes illegal, because if you jam 18, 24 people into a 3 ,500 square foot home, that's illegal, that's a rooming house.But during that massive expansion, that crazy insane expansion of foreign students which was just a rip -off.It was ripped off the students.It was abusive of the system.

It made no sense.And yet, we watched it unfold.The government did it.And it took them so long to figure it out.But finally, it's over.And those people who formerly had 20 students stuffed into their homes, paying $800 a month each, it's gone to zero because the students are gone.

And they're doomed.They lose that house.That house goes into default.And it's a catastrophic destruction of values in that particular community.40 % off, you know, March 2022 peaks.That's crazy.

40 % reduction in real estate and still falling.It's still coming down.

and most Canadians have their wealth in their homes.Thank you for watching this clip of The Really Big Show.If you want to watch the full show, you can head over to our YouTube channel and you'll find it under our lives.And if you really want to find out more information of everywhere you can find us, go to thereallybigshow .ca and there you can find links to all our channels.Thank you.