Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 8, 2020 | MSB

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.

The burning question is (of course) will people who hoard toilet paper buy houses?

First, why in Dog’s name are folks storming supermarkets and Costcos, fighting over Cottonelle? How is that supposed to prepare you for a pandemic of snotty neighbours and wheezy co-workers? If you end up being quarantined what, exactly, will you do with a hundred rolls of tissue? Fifty bottles of single malt, I can understand. But this?

And yet from Honolulu to Sydney to Burnaby to Mississauga and Calgary the Tpaper mania continues. Here’s how the paper towels/toilet tissue aisle looked in Jeff’s local supermarket in Edmonton yesterday. “Are people idiots,” he asks? Yup.

Why toilet paper? “I wonder if this stockpiling is to do with what toilet paper represents as a mark of civilisation and our behaviour in its use distinguishing us from animals,” muses an Australian academic (shelves are empty there, too). After all, humans are the only species alive that do not self-clean, like your oven.

Likely, though, people have been MSB (mindlessly seeking bumwad) because everyone else is doing it. We’re herd animals, massively influenced by our peers. Especially now in an era of social media when stuff like this somehow becomes more important than, oh, the economy. Finally, faced with the overwhelming media coverage of the virus, the emotional toll its taking and the feeling of personal helplessness, MSB is something. It’s a task. An action. Because toilet paper is bulky and cheap, you can spend fifty bucks and feel rich in the new currency.

                

Listen, Doug, Ryan, Bandit and I have no special insight into what comes next. Will a Canadian city be quarantined? (Doubtful.) Will we have a recession? (More likely.) Will your balanced portfolio keeping melting away for the next two years? (Not a chance.) Will interest rates fall more? (Yes.) Will this turn real estate back into an inflating gasbag? Hmm. Let’s mull that one for a few minutes.

Last week both the Fed and the Bank of Canada slashed their key rates a half point. It was a rash, extreme move. More to come, too. So the cost of a mortgage is getting ridiculous again. In the last week Big Banks have dropped fivers to about 2.6% (inflation is 2.1%). Variables are at generally the same price, but will fall again by the third week in April. Central bank rates are destined to drop another .5% to a full 1% before this weird chapter in peoplekind history is done. Meanwhile you can get a 1.99% three-year mortgage or a VRM for as little as 2.1% from the broker with the falafel place downtown.

Cheap mortgages have caused FOMO and brought housing bubbles in the past. Will this be repeated in the spring of 2020?

Maybe not, given the toilet paper fetish and fear Covid-19’s been allowed to generate. As mentioned here last week, the Chinese and other offshore buyers have disappeared. Sellers may not want a bunch of germy, sneezy potential buyers traipsing through their houses, dispensing micro-droplets of liquid Armageddon. So listings could shrink over the next few months. And, oy, the economy. Oil has crashed, China’s been locked down, cruises are dead, airlines struggling and events being cancelled even where there have been zero cases. It’s hard to imagine how Canada can avoid a recession, especially after the damage the FN goofs and their moronic, misguided supporters did over the past few weeks.

Recessions mean job losses, and are not good for real estate. Neither, it turns out, are pandemic scares.

Blog dog Yogesh reminds us what happened the last time – during the SARS panic of 2003. Data from the Province of Ontario shows the last thing people wanted to do that spring was go shopping for a new house.

New home sales down 45% y/o/y in March, 36% in April. Resale home sales down 6.4% and 13.4% respectively. COVID-19 is here during almost the same months of the year, you will notice. As it turned out SARS was a dud in the long run, and COVID-19 might be too. But if there is one thing that has not changed between then and now, it is the human tendencies. Are we in for the same?

By the way, the Chinese real estate market has utterly collapsed. In 70 major cites home sales declined between 90% and 98% year/year last month. That impact is now being felt on the west coast of the US, where sales in Seattle (a hot market), for example, are tumbling.

So, will people here who hoard toilet paper buy houses? Or crave condos with group elevators and hallways full of unwashed strangers?

All we know for sure is that the next six weeks will be full of surprises.

Off to buy scotch now.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

March 8th, 2020

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.