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Real Estate Without Borders
How Household Debt and Bond Yields Could Trigger the Next Recession
00:28:19
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- [00:02]
A
All right, Real Estate Without Borders. Welcome back. Cam's got his American Express headset on. Hopefully we'll get some better audio quality for you today. And I think today we're talking about the article that you sent me on Reddit about Canadian real estate and US Buyers. And then we're also going to go through debt. We're going to talk a little bit about debt leverage. World's most indebted households in 2026 kick us off here. What do you want to start with?
- [00:29]
B
Yeah, it's the start of the summer season, obviously. So the article was good timing about it, which was basically seeing an increase of demand in US Buyers up in Ontario cottage country. So I thought we could look at that just a little bit. Interestingly enough, this is by no stretch of the imagination a new phenomenon. I mean, it's been going on since when is it back in the 1870s. And if you're familiar with kind of Muskoka in that region, Pittsburgh wealth was kind of the first immigration up for it and purchasing large chunks of it and actually building out enough of an investment from high net worth country expert.
- [01:11]
A
I didn't know that.
- [01:12]
B
I like it up there. It's the best. It's the reason to stay in this area, to be honest with you. So I get it from people finding nice places to stay. But interestingly enough, like we're talking about before, they've been kicking around and making their investments up there from the 1870s onwards to a point where it's even they started calling an area of it Little Pittsburgh, which I didn't actually know.
- [01:34]
A
I didn't know that either.
- [01:35]
B
Yeah, I mean, one of the things that this is talking about, which kind of goes back to the point of there's a couple reasons why they're seeing an increase in investment. You'll probably know the market aspect of it better, but there's been a decrease in pricing recently, making it more attractive. But another key factor that they're kind of attributing towards this increase is the strength of the US dollar. Effectively, you're sitting at 138. So it's what, a 35% discount on it, which is driving and making these types of areas look more attractive from an investment and lifestyle standpoint and will continue to be so for the next little bit. But if you're thinking about it long term from an international real estate side, if you can get in while the dollar is strong, it'll protect you from a downside against it in the future. This particular area, the Muskokas is notoriously famous. One of the best places in the world. I think National Post years ago did something about that. And you've been seeing key members outside of. We're talking about the original groups in the 1870s, but famously there's. Who else is up there? The Beckham's going vacation up there. I think Tom Hanks has a place up there. But you're seeing more and more people continue to do it. And one of the notes on that article which we've talked about in other regions as well, is almost a hedge against political geopolitical.
- [03:00]
A
Yeah, it's like in the headline there. Yeah. Literally says, American buyers are flocking to Ontario's cottage country, driven by a strong US dollar in search for political stability.
- [03:08]
B
Yeah. So it gives people a bit of a hedge on that side. But ultimately the dollar is the key component to it. And if you've done any sales up there within your firms or kind of your own life. The Muskoka region is not for the faint of heart from a price point standpoint. So getting that discount on it can be quite good. So I think it's interesting to see an influx of international US Buyers coming into the market and starting looking at it a lot because of that. Go ahead.
- [03:38]
A
Oh, yeah, I was just going to say. No, I'm pretty in tune with it because we actually have this property listed for sale right now in point of barrel. And the majority of the marketing. The majority of the marketing that we've. We've been doing is to U.S. buyers. I mean, this is like, it's got. It's a huge compound on an island, five acres, two massive houses. The majority of interest that we're seeing from a marketing perspective, if we do Facebook ads, Google Ads, et cetera, majority of that's coming from U.S. purchasers and a lot of New York, a lot of driving distance stuff. But point of barrel, similar to what you're saying. I think Gil Weston's place is in point of barrel. It's just a Georgian Bay side of Perry Sound, basically. But yeah, I think lot of interest in that end of the market. I mean, one of the reasons why they were interested in us being the listing agent on the property is because we have the international exposure through this show and through a couple of other, obviously the Canadian Real estate investor podcast and all those things. And they felt that the property was going to need that to move. And it appears to be true. Again, most of the interest that we're seeing is from that.
- [04:53]
B
So that's a beautiful property. That's Quite a funny thing that you've got it listed. I actually didn't know that. So what. Also excellent timing for it. You'll probably know this pretty well too. What's this? Because I'm an Ontario national, so from a real estate international buyer, there's. What is it? Ontario non residents speculation tax. And now that you've got an actual listing in there, you seeing that come up in conversation, how does that affect that purchase price for it?
- [05:18]
A
So for recreational properties for Americans, like for seasonal residences, it's an exempt. Like there's a, like.
- [05:24]
B
Okay.
- [05:25]
A
It's funny because I'll pull up all the exemptions. It's freaking hilarious. It's just classic Canadian policy, right? They release a policy, sounds tough out of the gate, and then they just riddle it with a bunch of exemptions. They literally have a whole page here on non resident speculation tax exemptions. And it's just like. So if you're pr, if you're a nominee, if you're Ontario immigrant nominee program spousal exemption. Where's the other one? Oh, there's a CMHC page on this I gotta find here,
- [06:02]
B
essentially.
- [06:03]
A
Oh, it's a foreign buyer ban that has it. Foreign buyer ban exemptions. It's a whole CMHC page on it. And then it basically shows you like all the. They've changed all these things, but I'll find it. But basically like if. So a residential property has three buildings, three dwelling units or less. So a lot of your foreign investor capital has just gone into four plus buying apartment buildings using CMHCMLI select financing, etc. And then you can also buy residential properties located outside of census metropolitan areas and census agglomeration. So rural properties, which this would qualify for and many cottage properties would qualify for. And then also in defined circumstances, which is your. Which is your recreational property, I'll find the actual exemption.
- [06:55]
B
Yeah, I thought again, this is your area of expertise. So it's interesting because you see that and you go, wow, 25% of a sticker price, like a knockup on the price basically, or an additional cost that would kind of eat into that currency rate arbitrage. But if there's ways around it, then happy days. And you can still see that international investment side of it. I think touching on something else that's kind of interesting, go relate to. It is for the first time in a long time, you're seeing high net worths and millionaires in the United States starting to get interested in leaving. And there's even an uptick in the high net worths there. But one of the things, I think that article says it and some other research was saying it as well, is the nice thing for American international real estate investors, or people buying second properties or what have you, the Canadian region's an easy hedge. Like, we were talking about one you can drive to it.
- [07:48]
A
You know, culturally similar, close. Like. Yeah, I mean, it makes sense. Same reason, like, so many Canadians buy in the U.S. yeah, exactly.
- [07:55]
B
Right. And we've talked about that one a fair amount, but it's, like, nice to look at it the other way and know that we do have some areas that other people around the world are looking to come and purchase into, at least in my mind. So.
- [08:05]
A
Yeah, well, two biggest places for Canadians to buy real estate is like the two that they share borders, or, sorry, Americans buy real estate is the two they share borders with. Right. Canada and Mexico. Yeah, that's like one of the reasons the show even started is like, Nick and I had the Canadian real estate investor podcast, like, biggest Canadian real estate platform. And Dave Hutch, who's the former co host on the show, he sells a lot of property in Mexico. And so we're like, well, you know, if those are the two places, like, let's just build a show for that audience. And we've ended up talking about a lot of other places that have been super interesting, but nonetheless, I mean, it's been like, you know, it always comes back to those stories, especially when you're talking about the political instability side, et cetera. And you're seeing a lot of US companies start to relocate into Toronto. Like, a ton of, you know, anthropic just popped up in office. A couple of other videos just took a huge one. Yeah. So a lot of U.S. companies, I mean, they come. They come to Toronto for. I mean, we have some of the best talent in that space in the world, and. And cheapest wages. Right? Like, wage. Why is Toronto such a housing crisis? Because we get San Francisco quality talent and. And. And, you know, wages of like, you know, the Midwest. So it's.
- [09:10]
B
Yeah, it's great. I mean, I've spoken to UK firms over the years, being in the space that I'm in, and some of them will be considering. Do you go to New York or do you go to Toronto? And obviously, I mean, I've got a bit of a biased opinion, but the first thing that I tell them is, like, it's substantially cheaper here with better, like, just as good talent. So why wouldn't you come up here? I mean, for the Brits, It's a buck 85 to a pound. So I mean there's a huge discount there. And I've worked for British companies for a number of years and it's quite a funny thing because you start talking to them about pricing cat and they go, and you know, there'll be a bit of sticker shock and you go, ah, you put it into pounds and you'll be fine. I think you see the same thing from a corporate standpoint as you do with people coming up to purchase these, these perceived discount.
- [09:55]
A
Right, let's talk a little bit about that. Like, because I mean bond yields have been insane this week. Like do you want to, do you want to tell me a little bit what's going on there? And like, because this is obviously going to change the currency environment. The yen just hit record highs, I think Yen bonds or Japanese bond, I don't know. It's called the JG bond something. US 30 year is getting to global financial crisis levels. Obviously oil prices starting to indicate on the long end of the bond market that it feels like there's this entrenched permanent structural issue with inflation. But what do you read on that? Because Canada's bond yields have been kind of tame by comparison. Our CPI came out a couple of days ago, wasn't bad. I mean it typically is like 100, 100, 100 bips below the US like even during COVID the US peaked at like 8.4. We were in the sevens. So I think our basket's different obviously. But I mean just if you, if you think about like the magnitude of increase, Canada seemed a little tame by comparison. What's your thoughts? Like, does that, does that give a, like the bond yields and currency disparities kind of start to increase the incentives?
- [11:04]
B
Yeah, I mean the bond yield side will certainly create fluctuations within it. And already the new Fed chairs stepped in and originally it was like he's going to cut, he's going to cut and he's going to cut. And fundamentally the bond yields kind of continuing to spike have made it. So that's unlikely to happen without high risk.
- [11:25]
A
I think Fed Watch has more likely to see a hike that cut. Right.
- [11:30]
B
And that's purely based off of inflation and bonds. Right. So you're seeing that it's going to make indebtedness harder to continue to pay for. And you've seen a spike in US dollar from this kind of shift in the Fed interest rate that you were just talking about. Already we're back above 138, which we haven't been in a While so this will create potential risks really to everything. So if interest rates go up then and the bond rates are up, it's harder for them to pay their debt. Inflation continues to rise and it's kind of that continued pressure that we've talked about and it's trickling out everywhere. And obviously it stems a lot from the inflation at least is stemming a huge amount from oil and gas pricing. And that's not done yet.
- [12:15]
A
We're just starting the new agricultural cycle where now that it hasn't come down, these are going to be entrenched in food prices for this ag cycle as all of your tractors are burning diesel and fertilizer. People don't talk about fertilizer coming out of, out of that area as well. I mean, this is a year or two of really bad inflation. And then the question becomes like, if you look at the historic Fed funds rate, It's like Fed fund futures are always wrong, basically. I mean the question becomes, do we end up with more likely scenario being like, yeah, okay, the economic data that Fed fund futures is using right now points to entrench inflation. And this is an issue, but you get a quick spike in inflation. If we're in like we're in the fours or fives in many places in the world in the next couple of months, that's going to hit the consumer. I mean you saw Walmart earnings down, Home Depot earnings down. So you get like consumer spending drops off. Now you're talking recession and rates coming down within the 12 or 24 month, not up. And if you look at Fed fund futures for the last whatever, like I don't know, is this 30 years, 20 years, like they're not exceptionally accurate because they're using today's data. And then the data changes. To me that today's data says, yeah, rates are going to go up because inflation's there and it's entrenched and we need to slow the economy to control the couple of things that the Fed or central banks can control that are contributing to inflation. But what about all the things that they can't control, which is fuel costs, et cetera. Those are still going to be there. And then the consumer gets tapped out and then we see a recession and then rates actually have to come down. I don't know what your read is there.
- [13:55]
B
It's a bit of a double hit in my opinion too because you're likely still seeing the trail on effect from all the tariffs. They've been struck down, but there's still some there and the economists will Say that it takes over nine months for it to be fully implemented into the economy. And I mean it's been last year at this time you never knew what was going to be tariffed and for
- [14:14]
A
how much the light switch on and
- [14:16]
B
off, on, off, lag over and cause inflation now these days and then you've got the oil shock. So you know, I think the bond is what they always call it, the adult in the, in the room. And you're seeing them show their fears for it. And ultimately it means that it's more expensive for everybody to pay off their debt which as you said amongst a whole bunch of other things just causes some potential more issues. Yeah. And can you did see some.
- [14:45]
A
I think it's interesting like on the tariff side because you see tariffs like tariffs on, tariffs off. What you would see is a lot of volatility in economies like Canada. You were getting a bunch of producers buying stuff before the tariffs were on shoring up inventory. So you saw this huge spike in GDP and then the next month they were offloading it and then it was a drop. So we had up, down, up, down in GDP last year. And most other countries are like this. I mean China is another great example. And the US just went to China to kind of talk about the situation in Iran and their ongoing trade war and whatever. And I think they resolved that tariffs would be reduced in China which is sort of like the manufacturing floor of the world. Right. And if you look at China like, I mean China has obviously been massively impacted. They were kind of the primary target of the original trade war.
- [15:39]
B
Yeah. I mean those were back in the first term. Right. And they held on after Biden.
- [15:43]
A
I mean why would you get rid of them? Right. And that. But you look at China like how you want to see like a long term story on what, on what inflation or tariffs looks like and draining an economy. And we'll push it back to real estate is Chinese real estate market has fallen to its lowest prices in the last at least 20 years. So they just did a round trip to 07. House prices. Crazy.
- [16:04]
B
They did a lot of building like overbuilding.
- [16:06]
A
Oh yeah.
- [16:06]
B
I mean there's famously empty cities and stuff there. Yeah.
- [16:10]
A
Well I don't know if they, I think they underestimated the impacts of pulling the entire country into the middle class on their demographics graphics. Right. Like the Western, the Anglosphere. It was a slow climb. Right. China, India's. India is going through the same thing right now. You know we've talked about birth rates a lot on the show. Like Everybody's getting below this replacement rate and it's because. Why? Well, middle class people become selfish. Like I think, I don't know, like they don't want to have kids. Right. So yeah, it's.
- [16:39]
B
What is it? It's like the lower income and upper echelon are the ones that produce more kids either from cost or lifestyle choices or what have you. And, and one of the things that you'd sent over, which talking about bond yields probably flips over to it pretty effectively is household indebtedness. Fundamentally, bonds continue to spike and interest rates have to climb places with huge household indebtedness. And if you're not running like the states does, a 30 year mortgage, if yours is coming up soon, probably mine comes up next year and the pricing of it's probably going to go back to when I first took it, when everyone thought we were going to be pushing down. Right. So this is kind of, this is a cool little graph.
- [17:20]
A
Yeah. This is interesting too because it's household debt per capita. It's not, it's not like debt to household income. So like the US actually ranks above Canada in this one, which surprised me. You know, you just don't really see that. Like if you look at, usually you see Canada when you think household debt to income because our incomes are so much lower on average by comparison to the U.S. canada is typically top five on par with Switzerland, Luxembourg. I guess Luxembourg's usually not up there, but Switzerland, Norway, Australia, Denmark, Netherlands, Canada would be top five household debt to income US Your debt. Rich people carry a lot of debt. Why wouldn't you lever up? You get the carry trade. If you're rich, you're wealthy, your return on the capital that you're borrowing can outpace the cost of the capital that you're borrowing. You're going to take on debt. So you see a big skew upward on the per capita number in the US US and that's why Switzerland, it very much has a high number as well. You got a lot of rich people there. Switzerland also has a pretty high debt to household income. But the U.S. debt to household income isn't that bad. But you talk about bond yields, interest rate sensitivity, right? Like Canada, you said your mortgage is coming up for renewal. Canada's mortgages aren't like the US Mortgages. And most places where an American would be buying real estate doesn't have even a market for 30 year bonds. I mean the only markets where people are looking to buy 30 year bonds or currencies, where people are looking to buy 30 year bonds is USD, right. Canada doesn't have one. I think France has a 25 or 20 and they have a mortgage derivative of that. But Canada's got 5, 10 year, 15 year I think is the longest mortgage you can get and the rates are insane on them so nobody uses them. So everybody's resetting into the new credit cycle. Probably continued financial pressure. Unless something changes in the economy, they're like, I don't know what your thoughts are there.
- [19:07]
B
I'll tell you when we signed up I just did a three year and I was like ah, the interest rates will go down, the interest rates will go down. And now even 12 months out it's like ah, they're probably going to go back up again. You know there's not going to be this huge saving on it. So we saw are coming through that first initial shock. Right. And you know about this probably more from a statistical standpoint of when the mortgages were coming up for renewal within the Canadian market. But most of that's done from the COVID lows because most people are on five year.
- [19:36]
A
Yeah, yeah. So you have like in Canada you have the big like you have the mortgage renewal wall coming up right now. Like you know it's this year is like the biggest, most mortgages that have ever reset in Canadian history. US is like an opposite phenomenon because everybody during COVID was piling into those record low rates and now they're stuck in a 30 year and I don't know if they're portable. Some are, some aren't but like. So you can't take it to your, you can take some to your new property but not all of them. But people are like trapped by their mortgages because they're like well would I go buy a new house at a 7% rate? And then. So you're actually seeing more. Yeah. So you're seeing more people like choose to renovate and stay put. Right? Yeah. I mean two, I think three and a half was the lowest you saw 30 year but still like 33. You won the mortgage lottery if you got a three and a half 30 year honestly. Right. Like and you're not, you're not incentivized. So. So this is where you've got a lot of people in the US and this is what's made the market a little bit illiquid. Even though you have like I think sellers are outpacing buyers in the US market like 100 or two 2x100 over 100%. I think it's like a million more sellers Than buyers. Yeah. On the one thing I was just going to mention on the household debt to disposable income here. If you look at the chart like G7, Canada was the one country that really levered up post GFC. Like you saw, UK and US have seen a decrease in debt to disposable income. US is around 100%. Canada's at like 177%. I mean we're coming off the peak. We delevered a little bit after the rate hiking cycle but starting to climb again as people are dealing with financial stress and rates going back up and inflation and whatever.
- [21:06]
B
So yeah, there's a cool little footnote on that first one saying that one of the reasons kind of as a caveat for the Swiss having so much is also that their mortgage system encourages you not to fully pay it off.
- [21:17]
A
Yeah, yeah, for sure.
- [21:19]
B
So now you're have to research a little bit about that because I did not know that because that's everybody's kind
- [21:23]
A
of, that's the tax deductibility of the loan I think. Right, yeah.
- [21:27]
B
But like for here it's like you want to get rid of your mortgage as quickly as you can and if they find a way to make it useful or it's not part of the culture to pay it off, no wonder they're carrying more household debt because everybody here rushes to get rid of it as quickly as possible.
- [21:41]
A
Yeah. I mean you have a similar thing in the US Right where you have a mortgage interest deductibility. Whereas like in Canada, I mean, so and this is an interesting one, we should actually, we could even just talk about this now, but we could do a whole episode on is like capital gains treatment. Right. Because there's a lot of countries where you can buy property as a foreigner as a primary residence and it's capital gains exempt if it's within a certain like you live there a certain amount or whatever. The US has capital gains tax exemption but it's really like it almost becomes a wealth tax like over 5, I think it's 500k per household, 250k per person I believe is is capital gains exempt and you can tax deduct your mortgage interest. You don't get that. Yeah, in Canada we have full capital gains exemption. It's funny because people are always like Canadians like, you know, they're always like, oh, capital gains are so bad here. It's like capital gains inclusion rate in the US is higher. It's 100%. And our, and our tax rate. Yeah. Or our tax rate Is higher on capital gains, but the inclusion rate is. Is less. So your effective tax, capital gains tax rate is actually higher in the US than Canada.
- [22:42]
B
Yeah, I mean that would be a cool one because I'd love to learn more about it, to be honest with you. I mean you get focused on your own life a lot of the times within your own country. Right. And don't really look at what other places do from those sides because. Yeah. You always. Everybody complains about taxes no matter where you are. I think one way or another.
- [22:59]
A
Yeah, it's true. Yeah, it's. Grass is always greener.
- [23:01]
B
Yeah, yeah, exactly.
- [23:02]
A
But yeah, I think capital gains, like capital gains tax exemptions would be a really interesting one because I think that's like one of the. One of the key like levers when you see like a lot of these golden visa, like know whenever like the digital nomad, like policies like Portugal, et cetera. That was one of the things that they were often including like no capital gains on crypto a couple of these places. Right. Like I think we've. Dave and I have done a couple of episodes on in the past as well, but it'd be a good one to look at is like capital gains tax exemptions by different countries. Yeah. I think I also sent you in regards to that household indebtedness. There was one on the costs of units in different countries. Let me just see if I can pull it up on Global Property Guide.
- [23:48]
B
Yeah, I don't recall seeing that, to be honest with you. So I might have just missed it.
- [23:52]
A
No, I feel like I didn't end up sending it, but it was something I wanted to include in this discussion. But it's your rates across different cities around the world. There was a list as well, but you've got Toronto price per square meter versus New York. I got to find the list version of this visual. Although the map is actually sick.
- [24:20]
B
Cool. I can't do price per square meter at all in my head.
- [24:24]
A
Yeah, no, it's okay. Well it doesn't really matter as long as you are comparing by so current price per square meter. Hong Kong, Switzerland. So again you start to see little correlations between household indebtedness. Luxembourg, which is another one on that list.
- [24:42]
B
Israel was there, but further down.
- [24:44]
A
Yeah. Singapore, Hong Kong, Tel Aviv, Denmark, Sweden, Stockholm, Sweden, London, Vienna, Toronto, Canada. It's higher than Vancouver on a price per square meter. That doesn't make sense.
- [25:01]
B
Maybe.
- [25:02]
A
I guess vans come down quite a bit if we're talking about apartments. Yeah.
- [25:05]
B
Come down a fair amount.
- [25:06]
A
Right.
- [25:07]
B
It makes me Feel a little bit better that Toronto's not fully number one on that list.
- [25:11]
A
Yeah, yeah, for sure, for sure. Yeah. 7,000 per square meter. I mean, Hong Kong is what, almost triple that? Yeah, it is more than triple that. 22,000 per square meter. Crazy. Yeah, we think we got it bad. I mean, this is just kind of the thing with like global cities and people want to try and discount that. Like Toronto is becoming that, but it's certainly like not. I mean, with all the moves they. I feel like Toronto is still. There's like a place where global capital is going to keep going.
- [25:39]
B
Yeah, I mean, it's a great place to live. Seeing it continue to move up. Wow, this will piss people off, I'm sure. But you're seeing more and more people migrate here. People have gone out to other places in Canada and then said income back. And this is where the financial core is. Right. And what you see in a lot of those spots is the cities that are the most expensive is where the banking infrastructure is and the finance jobs are.
- [25:59]
A
Yeah, yeah, 100%. I pulled up the Switzerland thing too, by the way. It's like Switzerland made mortgage debt tax useful. Swiss homeowners are taxed on imputed rent, basically a fictional rental income over living in their in their own home. But they can deduct mortgage interest and maintenance costs against taxable income. So keeping a mortgage can reduce taxable income. Also, Swiss mortgages are commonly split into two portions. First mortgage up to two thirds of the value of the home. 66.7% loan to value often not required to be paid down. So just IO credit facility, then second mortgage. Isn't that crazy? And then second mortgage, a portion above that is usually amortized over time. Yeah, and they just voted to abolish the imputed rental value with changes expected around 2028 and mortgage interest deductibility for owner occupied homes being phased out or limited. So that's actually a factor that will likely change. Like I'm a Swiss citizen. I did a military conscription there and stuff and so like. But I didn't even know any of this stuff. I thought it was kind of, kind of interesting there. I don't know if you have any thoughts on that, but interesting market anyway. Super expensive market.
- [27:12]
B
Super expensive. I mean, I've been there a couple times. You've obviously spent much more time there. I had a bit of a sticker shock just from cost of living travel.
- [27:20]
A
Canada's pretty comparable now though, man. I think the sticker shock really just comes from the Swiss Frank. But like if you were. If you're buying in USD versus Swiss Frank versus Cad, you would. You would not notice a difference in cost of living between Canada and the U.S. i don't think. Or, sorry, Canada and, and Switzerland. Like, it's. It's pretty expensive here.
- [27:42]
B
Also, caveat that I was backpacking and I'm living off of like a dollar forty a day.
- [27:47]
A
Different. Different phase of life for sure.
- [27:49]
B
Cool. Yeah, exactly.
- [27:52]
A
Cool, man. I guess we'll wrap it there. We'll keep it a short one. I know my computer's. I think it's running out of steam here. So. Yeah, we'll. We'll wrap it up and then we can. We'll. I think we had an interview coming up with a guy, the guy from RBN Rewards next week. And we'll do a couple other things. Maybe we'll do the cap capital gains thing next week.
- [28:11]
B
Yeah, it works for me.
- [28:12]
A
That's perfect, brother. Have a wonderful weekend.
- [28:16]
B
Yeah. Take care. Enjoy yourself.