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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 17, 2020 | Unintended Consequences

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Welcome to the Friday edition of the not-a-virus, real estate, investing, macroeconomics, canines, babes (can I say that?) & balanced portfolio blog. Even if you’re not quite sure about your pronouns, we’re here to help. And the price is right.  Worth every damn cent.

First a follow on yesterday’s head-scratcher about how real estate values and sales can be rising when unemployment’s rampant, we’re in a recession and Covid lurks. Multiple offers are the norm again. Sadly. There’s nothing more irritating to buyers than blind auctions in which the seller’s agent holds all the cards. The practice has exactly the result intended – price inflation. And this is a bizarre outcome when a global pandemic continues to sweep through society. But it’s here. 2017 again. FOMO all over the place, from Halifax to Leslieville to Maple Ridge.

Pent-up demand is strong after everyone spent April in sweats on the couch watching Space Force. Inventories are low since sellers didn’t want germy showings and spit everywhere. But the real reason is the eternal one – cheap money. As interest rates drop, real estate lust rises, since Canadians long ago swallowed their fear of debt. This week the Bank of Canada boss, Tiffer, said rates will stay low for three years. And he specifically mentioned ‘mortgages’ in this fateful sentence. “If you’ve got a mortgage, or you’re considering to make a major purchase,” he said (unwisely), “you can be confident that interest rates will be low for a long time.”

CIBC is the latest to bite. A five-year, fixed-rate loan is now available for less than 2.4%. And there are even better deals from smaller outfits (but be careful). Bank mortgage departments are humming again after a year of misery and lenders are keen for new business, since close to a million clients aren’t making monthly payments – and won’t until the end of 2020.

Now people in the biz – mortgage brokers as well as realtors – are speculating Tiff Macklem is opening the floodgates to speculation and unbridled investor friskiness. This seems to fly in the face of recent attempts by CMHC to tighten up credit, and that agency’s warning house prices are unsustainable over the next year. The big question is what happens when (a) people have to start paying their mortgages again in a few months, (b) it’s evident economic recovery will take years, not months, (c) the jobless rate stays in double digits until Christmas and (d) the CERB cash river dries up. “Then we will see the true health of household balance sheets,” says an economist at RBC.

The inevitable, reasonable, rational, no-realtor-crap conclusion: this is a temporary phenom. Buy now with a little down payment and be prepared for negative equity next winter. That’ll be fun, especially if we get a second wave.

Now, on the issue of mortgage deferrals we told you that every week another few thousand people tell their lenders they can’t pay. Many can, of course. They just don’t want to. They think the money can be ‘saved’ for something better. And they believe this can be done with no consequence.

Better rethink that, says blog dog Darrell, after looking at his recent bank report.

“Proof on my personal account today that Trans Union is flagging and tracking accounts that have deferred payments,” he reports. “This is a Trans Union service offered to RBC clients. The “new” statement went up within the last few days.” And you can see – a deferred payment is now clearly part of the credit bureau summary.

 

So what? Time will tell how the banks choose to use information that a client has welched on his/her payments. Obviously a person who cannot pay because of a job loss is less creditworthy and can expect to have their file flagged when it comes time to renew, refinance or look for a new mortgage. The advice stands. Never, ever, ever defer unless the option is eating bugs.

Finally, about that CERB. The feds are throwing $82 billion into the virus small-biz wage subsidy program, basically as an incentive to wean people off the $55 billion money-for-nothing scheme that has been giving two grand a month to more than eight million little beavers. This, in turn, is all part of the $343 billion in deficit spending for 2020 that will make paying taxes so much fun for the next three decades.

The CERB was a lifeline for people whose income was sucked away by Covid. But it has engendered many problems due to the lack of supervision and qualification. More than $11 billion has gone to children who never worked a regular job and live with their parents, many of whom are also collecting. Many folks in BC think giving money to people just because they have a SIN and a bank account has resulted in record opioid use and deaths in that province.  And small businesses are definitely feeling a CERB backlash.

A survey of business owners just done by an industry group had a shocking result: 62% of workers said they’d rather stay on the pogey than come back to the job. Almost half said they don’t want to work (and would rather stay on the CERB) because they fear for their health. Says the Canadian Federation of Independent Business:

“It is clear that CERB has created a disincentive to return to work for some staff, especially in industries like hospitality and personal services. CERB was created as emergency support for workers who had lost their job due to the pandemic, not to fund a summer break. This is why it is critical that all parties support the government’s proposed change to end CERB benefits when an employer asks a worker to return to work.”

T2 extended the benefit, as you know, out to September. Maybe it will be forever. Work is such an outdated concept. Let’s just print money.

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July 17th, 2020

Posted In: The Greater Fool

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