Messed up

Word on the street is October will be one of the worst months in a reptilian realtor’s memory for real estate. The tariffs. The economy. Separatists east and west. Trump. Job losses. Stelco. Condo collapse. And now interest rates.

Already fixed-rate loans were on the up. All the big Banks threw on a bunch of basis points in recent weeks. Yesterday the central bank did the same to variables. Now the cost of all these borrowings is higher with the promise of more to come as the calendar turns. A full 1%, we’re told.

The guys selling mortgages don’t get it. “While inflation is a key concern of Ontarians, so is housing affordability,” say the brokers in that province. “The difference is that affordability is a pressing issue right now, whereas inflation is – at present – only slightly above the Bank of Canada’s target rate.”

Inflation is 3.1%. The bank rate is now 2.5%. So the real Bank of Canada interest rate is negative. Five-year mortgages currently start around 4.5% – which means the after-tax level is barely more than 1%. Historically, this is seriously cheap money. And yet the industry – and borrowers – are recoiling.

Are interest rates really the problem here?

“As geopolitical and economic turmoil looks to continue and perhaps even worsen into 2027, so will unaffordability for buyers and hesitancy for investors,” say the lenders. “More action is needed to help revive the sector, especially given the ongoing breakdown in trade talks with the United States. Without deliberate action, the dream of homeownership will remain out of reach for many Ontarians.”

Great idea. More government involvement in the real estate market. Just what we need. Like empty houses taxes. Speculation taxes. Non-resident buyer taxes. Out-of-province buyer taxes. Increased land transfer tax. Forced zoning changes. And eight billion to increase supply when there are 345,000 resale homes currently sitting on MLS across Canada and an unsold inventory that will last more than four years in Toronto. The fruits of government policy so far are rotten.

So this is not about the cost of money. That’s just the latest irritation. At the heart is an economic crisis, says the industry.

“Without confidence in the housing sector… it limits new investment, which has further effects on employment, government revenue, and activity in other parts of the economy. Given the ongoing trade uncertainty with the United States, we can’t afford to further restrict one of the most important industries in the province and country. We hope that the Bank of Canada is not taking too narrow of a perspective with this rate hike.”

Well, too bad. Rates are going up. In Canada. In the US (after the vote) and globally. And while it sucks having 5% mortgages, Canada has seen a vibrant real estate market in the past when borrowers were paying 6%, 8% or even higher.

Of course, a higher rate means buyers can borrow less within the same budget. It means sellers must adjust their asks in order to attract an offer. Rising CB levels mean the 90% of Canadians who took variable-rate loans owe more interest each month, starting today. It puts the screws to builders and developers for whom borrowed money is the blood keeping their businesses alive. Add in supply chain issues, escalating material and labour costs plus surging energy costs, and many are on life support.

So, yeah, there are consequences to what Tiff did yesterday. Home sales nationally have slipped. Average prices are lower. Sellers are abandoning their listings. The pace of new construction has slowed dramatically, and governments have been quietly shedding those targets they trumpeted a year ago,

The basic problem is not supply. Not rates. It’s price.

Canadians have financialized housing over the past two decades, and especially since 2017. Governments and the central bank may have incentivized the process, with low rates and homeowner favours plus that crazy capital gains tax holiday, but it’s been our culture at the heart of the problem. Culture, that is, fueled by financial illiteracy. The one-strategy-fits-all mentality has inflated real estate while contributions to RRSPs wane and people think financial markets are too scary.

It’s not working out well for folks. This year the TSX will be up by double-digits. Real estate will be underwater. Investors are better off. Homeowners poorer. Most Canadians are shedding equity and net worth. Sad.

If you own a house without debt, might as well hang on. If you don’t – and can’t buy without gutting your finances – it’s time to stop trying.

This is too messed up.

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Source: https://www.greaterfool.ca/2026/10/29/messed-up-2/