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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 31, 2020 | Wild

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.

Eeeeeeeeow! What a wild ride.

The stock market careened lower from record highs in just a few weeks by a shocking 38%. But lately it’s zipped back up an impressive 22%. Mr. Market apparently doesn’t think the world is ending. So I guess he doesn’t read the comments on this pathetic blog.

(When I walked back from the office yesterday Dorothy was a wreck. ‘What happened?’ I asked, sweeping her into my manly embrace. Finally she admitted it. “I read the comments,” she whispered. It took three awful episodes of Father Brown to cleanse her mind.)

Back on Bay Street an experienced vet says this: “We’ve had the shock and awe. The institutions are buying again. Consumer sentiment may start to improve. The bounce is technical. The market is pricing in a “V’ shaped recovery. Everybody wants one.”

People with nicely balanced and diversified portfolios who leave them alone will probably do fine. But what about the real estate market? Could the virus attack of 2020 be the catalyst for housing’s Big Reset?

Things are going from uncomfortable to excruciating for the realtor species. In Toronto, for example, showings fell 59% last week from the previous seven days. Same story for sales. Year/year deals are down 40%. The number of cancelled listings has grown by a third and new listings have plunged 33% as owners decide there’s no way germy strangers are coming through to fondle their stuff.

RBC (the biggest mortgage lender) says property values will fall. “Surging unemployment and the market’s illiquidity will compel a growing number of tight-squeezed [home] sellers to make price concessions. We think the recovery will come in stages—taking buyers up to a year to regroup and rebuild confidence amid high unemployment. Based on these assumptions, we project home resales to dive by nearly 30% this year in Canada to a 20-year low.”

Way worse in Calgary and Edmonton, of course, as Canadian oil prices crash (more to come, it seems). Meanwhile cash-strapped homeowners continue to melt down the banks’ call centres. Over a quarter million families have now asked for relief, and the calls are coming in at the rate of 80,000-120,000 per day. Staggering. Add this to the maybe-1,000,000 tenants who have indicated they can’t (or won’t) pay their rent tomorrow.

Now, here’s another flea on the dog: failed closings.

Almost 66,000 properties across Canada sold in the first eight weeks of the year, and a ton of those deals have yet to be completed. For every transaction there’s a family selling and one buying, so in the middle of a pandemic with mass unemployment and growing credit risk, many folks have a lot to worry about.

For example, the appraised value of a house may have declined between offer day and closing, jeopardizing financing. The buyer might have suddenly, unexpectedly lost a job and be unable to proceed. The mortgage broker’s funding commitment might have gone poof. Maybe an investment portfolio that was intended to finance the deal faded. Or perhaps, like so many in the blog’s steerage section, purchasers turned into paralyzed puddles of gooey anxiety. Buyer’s remorse, fear and loathing. Perchance they even got the bug.

Lots of reasons now exist for buyers to consider walking from a deal that poses risk. It’s not that dissimilar from 2017, when prices charged lower and deals disintegrated into lawsuits. Expect more, since a mere global pandemic is no legal excuse for getting out of a real estate contract. Buyers who fail to close not only give up their deposits, but also stand liable to pay the difference between their offered price and the ultimate sale price of the property in a down market. Plus legals. Ouch.

So, if you bought a house you could barely afford with a job, and are now unemployed, too bad. Even having the bank pull your funding won’t allow a clean break from the deal. With almost 10% of the entire workforce having applied for EI benefits at this point, expect some chaos.

And speaking of legal stuff, agents now need this sworn statement before they’ll even show you a house:

  • I have not travelled anywhere outside of Canada, or been in contact with anyone who has travelled outside of Canada, in the last 14 days.
  • I have not experienced any of the following symptoms in the last 14 days: fever, dry cough, shortness of breath, or difficulty breathing.
  • I have not knowingly come into contact with anyone experiencing any of the following symptoms in the last 14 days: fever, dry cough, shortness of breath, or difficulty breathing.
  • I have not knowingly come into contact with anyone with a presumptive or confirmed COVID-19 diagnosis in the last 14 days.

If you lie, the brokerage can go after you. The homeowner might, too. The cops will arrest you for non-self-isolation. The Social Distance Warriors will shame you mercilessly on FB, Insta and maybe (if they can dance) on TikTok.

Remember back when all you had to worry about were bidding wars, rockstar realtors in Audis, greedy sellers, blind auctions, runaway prices and your mom’s failed expectations? Damn, miss those days.

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March 31st, 2020

Posted In: The Greater Fool

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