What it isn’t

Yesterday we parsed the financial lives of two seventysmethings.

That provided the perfect opening for twentysomethings to moan about, and lament, their sorry lot (“wishing never to have been born” as one 23-year-old wrote), while trashing old people because they have more. Apparently life isn’t fair. Who knew?

Of course, as with most Millennial/GenZ/Alpha outrage, it’s all about housing.

But wait. Do the kiddos not see what’s happening?

Property values are falling and so are rents. Across Canada the average lease rate has dropped now for an astonishing 16 months in a row, and sits at $2,183. In Ontario renting is 3.5% cheaper than a year ago – with real rents (after inflation) declining more than 5%.

The average rent in Toronto has been rolled back to levels of four years ago. One-bedders go for just over two grand, a significant 7% drop while two-bedroom units have plopped more than 8% (to $2,826).

And we all know about house prices. Down everywhere – Vancouver, Victoria, Calgary, The Peg, southern Ontario, the GTA and beyond (with Montreal soon to follow). The average detached house in the country’s largest market has shed 26% of its 2022 value. The average property, for the first time in half a decade, is under a million. The story is similar in the LM, which is now in real estate recession.

Meanwhile, look at financing costs. Also tumbling.

Three-year money is available for 3.5% and five-year mortgage can be found for 3.99%. The annual inflation rate is 2.4% – which means the ‘real’ cost of borrowing is about 1.5%. Now, children, explain how that differs from the good old pandemic days when mortgages cost 1.5% and inflation was zero.

It doesn’t. And back then, people couldn’t gorge enough house debt – the catalyst for price escalation.

By the way, mortgage financing costs have fallen almost 30% at the same time real estate prices in major markets have shed 25%. Some reasonable people would argue this is stuff once-in-a-generation opportunities are made of. Especially because new home construction has gone paws-up, pretty much guaranteeing a shortage in the years to come.

Still, the buyers don’t buy. They fear prices will go lower. The monster under the bed is what they see as deflation.

Whazzat?

Deflation happens when prices in general, across an entire economy, decrease in a sustained way. Everything gets less expensive as the stated inflation rate goes negative – less than 0%. (That happened briefly during Covid when the economy was shuttered.)

The good aspect of deflation is that your money buys more stuff. The bad part is that falling prices, along with lower corporate and government revenues, mean lower incomes and rising unemployment. About the only thing not fading is debt. What you owe – on a mortgage or credit card – stays the same, and gets harder and harder to pay. Meanwhile because prices are going down people stop spending, expecting things to get even cheaper (like right now with real estate), so the spiral continues.

How does deflation start?

People get rattled and consumer spending tanks. Since 60-70% of the entire economy revolves around this, the consequences are sharp and deep. Prices fall. Supply chains get messed up. Inventory builds while demand doesn’t. More downward pressure. And at the same time technological advance makes the economy more efficient and productive, lowering costs and feeding price declines.

Of course, we all know what happens when deflation takes over. That’s how we got the Dirty Thirties and 30% unemployment in Canada. (My father told me as a school teacher his salary was dropped from $500 to $350 – per year.)

Well, kiddos, the good news is this may be disinflation (when increases in living costs moderate) but it ain’t deflation (when average prices fall and don’t stop). Central banks are still fighting to get inflation down to 2%. The American tariff policy is inflationary. Spending on AI is inflationary. Relentless pressure for higher wages and salaries is inflationary. RTO is inflationary as opposed to WFH. And the cost of building and owning residential real estate continues to rise. Inflationary.

The world economy has not shrunk but continues to expand. Commodity prices have not crashed. Food continues to become more costly. And more and more people want to own houses. Figure it out.

By the way, my parents waited until after the Depression to get married and buy a first home. They paid four times more for it.

About the picture: “This old guy was snoozing by the steps  of a temple in Thailand, having earned the right to lay whereever he chooses… tourists be damned,” writes Holly. “I assume the monks feed and care for him and his crew.  It was wonderful to see healthy (and almost fat!)  dogs roaming the roads and alleyways of Thailand. Thai people seem loving towards fellow creatures…. a live-and-let-live attitude combined with an unspoken promise to look after each other.  It made my heart glad.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/02/12/what-it-isnt/