A large café closed around the corner from where I live in mid-town Toronto. It took up two storefronts and was fronted by large floor-to-ceiling windows facing the street. I would walk by it several times a week because it was housed underneath my gym, and I would often see friends and neighbours through the windows, working on laptops by themselves or having a coffee and a chat for some kind of meeting.

I don’t know the intimacies of the café’s business or its troubles, other than an eviction notice on the door said the owners owed a couple hundred thousand in back rent. On the Summerhill stretch of Yonge Street, that might not take too long to accumulate. What the closure made me think of was the idea of the “third place” and that the regulars who populated it, especially in this era of remote work, would miss it.

The idea of the third place, where people can gather that’s neither home nor work, was developed formally by the American sociologist Ray Oldenburg in the late 1980s and ’90s. But the concept of the third place was popularized in physical manifestation by Howard Schultz, the president of Starbucks who led the chain to its explosive growth in the final decade and a half of the 20th century.

Schultz positioned Starbucks as an American version of the Italian espresso bar (or just “bar”, since most serve alcohol too), and serve as a meeting place for all sorts of occasions in a village or city neighbourhood. In Anglo-Celtic Europe, the traditional third place is the “public house”; or the “local”, which performs the same function. It’s where you go to hang out.

Churches, of course, are also third places. And gyms or sports clubs allow for that function too. In warmer climates, a town square is also a natural place for people to habitually cognate outside of the pressures and obligations of family and work life.

Back in Toronto, despite our recent loss, my neighbourhood still has lots of coffee shops. Some are closer to in-and-out Italian bars selling mostly take-out, others more inviting of laptop workers. It also has a few pubs, and I am a regular at one, where I meet people or take some reading to do over a casual lunch or a beer in the late afternoon once or twice a week.

Part of the charm of going to a place where everybody knows your name is that things mostly stay the same there, so change, when it comes, is noted. Not long ago I spotted a new red tap behind the bar and was pleased to see it read in white lettering “Oast House” and ordered a pint of the clean drinking Pap’s Pilsner.

An oast house was the building in damp British breweries where hops were dried in kilns. The Niagara Oast House Brewers is a brewery just outside of Niagara-on-the-Lake that was established by three employees of the Inniskillin winery in 2012. At first, it was a kind of local secret and a treat to try their artisan beers on trips to wine country. Trying the Oast pilsner brought back memories of wine trips and the maybe not-so-well-known relationship between wine-making and beer.

I fear many outsiders to the wine trade think it’s full of snobs. It may have more wine snobs than other groups, but it’s the same trade that makes, sells, and writes about all the wines, so in my experience the true snobs are mostly consumers who can afford to buy only expensive wines. As I have written before, if all you drink is fancy wine, then you’ll miss out on some simple pleasures, and most of us in the thick of it try and keep our minds open.

But even if you spend a day tasting through beautifully made wines, or especially if you have spent a day tasting through any kind of wine, few things taste as good at the end of it as a beer. Wine is high in acid, which is why it almost always benefits from being served with food.

With some sour exceptions, beer is generally low in acid and slakes thirst while camping the palate. They say it takes a case of beer to make a case of wine, and I can see why after a day of constantly tasting the product and physical labour in the vineyard or cellar, many if not most winemakers and crew would welcome a cold one after a long day. 

The wine press, by and large, likes beer too. Some writers also cover beer and are aficionados in their own right. Others, like me, just like a break and enjoy the product without thinking too much about it, especially after a long day of tasting. On my last trip to Alba, to taste the newly released Barolo, Barbaresco and other Langhe wines, a few of my colleagues and I discovered a bar devoted to birre artigianale near our hotel.

The bar, which does not seem to have survived the pandemic, soon became an unofficial canteen for the foreign press. Cold glasses of IPA were bought between colleagues who’d spent the day swilling and spitting young, highly tannic wines. Sure enough, we discovered a few winemakers in there too one night, and I was able to arrange a winery visit on my free day based on the meeting.

It was our own impromptu third place between work and home; a place to drink a beer and talk about wine after the busy events of the day, during that time when small conversations happen and life is mostly lived.

Despite lower prices, Canadian homes are more expensive than ever.

Canada’s housing market is in the middle of a sharp contraction, the scale of which we haven’t seen in decades—potentially ever.

In new data released last week, the Canadian Real Estate Association (the premier source of data on this) found the volume of sales has collapsed to roughly half of its peak during the pandemic. 

And our home price bubble may be bursting. But unfortunately for Canadians hoping to buy, even these sharp declines will do little to improve affordability and come with risks for Canada’s economy.

Year-over-year, prices are down nearly 13 percent. And compared to February 2022 (the peak), prices are down over 15 percent. This might be the sharpest decline for Canada on record. For comparison, the pace of home price declines in the United States during the financial crisis peaked in February 2009 at over 12.8 percent. 

And some suspect we are only halfway through.

To appreciate the truly historical scale of this development, it is best to look at the annual averages—where we have roughly a century of good data.

CREA’s expectation is for 2023 prices to fall 5.9 percent, on average, compared to 2022. RBC, meanwhile, recently forecast an 8.5 percent reduction. And TD projects a 10.7 percent decline. Even using the lower forecast from CREA, 2023 may be the second-largest reduction in the real value of Canadian homes in history, adjusting for inflation.

Of course, Canada’s housing market—especially in Toronto and Vancouver—grew rapidly during the pandemic to eye-watering levels, to put it mildly. A correction is welcome and healthy. 

For prospective home buyers, however, the situation is not improving. Despite prices falling over 15 percent, the monthly mortgage payment required to buy one is actually higher than before. The cause, of course, is rising interest rates

If you put 10 percent down and secured an average rate of nearly 6 percent, you’d face monthly payments of nearly $4,100 to purchase an average home.^{1This is just an average of posted five-year rates. Shop around to different lenders to find better deals.} That’s more than the roughly $3,800 per month you’d need to do the same early last year. If you put 20 percent down, monthly payments today would still be over $3,600. 

These high payments are far above the roughly $2,300 per month required before the pandemic hit. At today’s rates, home prices would have to fall by more than a further one-third to get back to that level. That would be a roughly 45 percent decline from peak to trough—which would bring prices back to where they were 10 years ago and would represent double the total price decline in the United States observed nationally between 2006 and 2012.

These numbers are just to illustrate the point, and individual circumstances, rates, real estate markets, and so on, will vary. But one thing is clear: with average (pre-tax!) monthly earnings of around $4,800, we remain firmly in historically unaffordable territory.

Using data for most of the past century, I find home prices relative to wages in 2022 were triple what they were for most of the period prior to 2000. In 2023, despite the forecasted drop, they may remain roughly 20 percent above the already-high 2019 levels.

Of course, interest rates were significantly higher in previous years, making even lower-priced homes challenging to afford. But I estimate 2023 is on track to see the second-highest ratio of mortgage payments to wages in Canadian history—second only to 1981.^{2This is based on the mortgage payment required to purchase a home of average value at the average posted five-year rate.}

To complicate matters further, the rapid pace of decline creates its own set of risks for Canada’s economy.

Consider the situation of any borrower who purchased a home in early 2022 anywhere in the Greater Toronto area. Today, their home could be worth 15 to 20 percent less. If they contributed less than that as a downpayment, they are already underwater: their mortgage is now larger than the value of their home. 

Multiply this across many buyers in many cities and combine it with the potential for slowing economic growth, or even outright recession as some fear, and the potential for challenges in Canada’s financial system is obvious. Major banks are already increasing their loan loss provisions in anticipation. 

To be absolutely clear, Canada’s financial system is much stronger than the United States’ was going into the financial crisis. The quality of our mortgages is higher since it’s harder to get one and borrowers face various minimum qualifying requirements. And our banks are individually in stronger positions. But there are still risks.

Indeed, our main bank regulator (the superintendent of financial institutions, Peter Routledge) recently noted “systemic vulnerabilities have persisted at elevated levels and, in some cases, have risen materially in recent quarters.” And they have acted. Effective February 1, for example, one of the key financial buffers the Big Six banks are required to hold—known as the Domestic Stability Buffer—was increased for the first time in nearly two years.

I don’t have a solution to offer. Supply-side efforts to increase housing supplies across the country are certainly necessary. But given the historically unprecedented situation we’re in—rapid reductions in home prices combined with worsening affordability—more public policy creativity than our governments tend to deliver is surely required.