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April 3, 2020 | Patience

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 fallout continues. More than a hundred thousand Canadians a day are applying for EI. Over 2.1 million so far, or 11% of the entire workforce. In the States 100,000 were expected to lose jobs in March. Over 700,000 did. And last month was but the start. It’s a mess. Turning off the economy to stem a pandemic has no good outcome.

A few more snapshots, then a look forward…

  • Close to 300,000 requests for mortgage deferrals now. Each of the Big Five banks has been getting about ten thousand a day. It’ staggering how many folks bought houses yet survive paycheque-to-paycheque.
  • Airbnb is disintegrating. In downtown Toronto (and Vancouver) scores of condos are hitting the rental market or being listed, even when there are no buyers. Nobody’s booking short-term rentals anymore. Cash flow is gone. It’s estimated as many as 7,500 units in Toronto alone could leave Airbnb and enter the rental pool, pressuring lease rates lower. There are few travelers and those on the road would rather stay in a hotel where management can afford cleaners and buckets of bleach.
  • One towering condo building in DT Toronto now has 110 units on the market. “This,” says a seasoned 416 agent, “has never happened.”
  • Realtors in Vancouver and Toronto just released March numbers. Gangbusters until the 15th, crickets afterwards. “Uncertainty surrounding the outbreak’s impact on the broader economy and the onset of the necessary social distancing measures resulted in the decline in sales since March 15,” says the Toronto board. “Sales figures for April will give us a better sense as to the trajectory of the market.” You bet they will. Wear a helmet.
  • Don’t work in one of those industries or services the politicians have deemed ‘essential’? Then don’t bother applying for a mortgage. You won’t get one.
  • RBC says the housing market across Canada will see a 30% sales drop this year, with lower prices.
  • Have you seen what’s happened to Robson Street? This is Vancouver’s busiest drag, home to moisters and hipsters, once famously hosting a Starbucks every few hundred feet. “Community life that has been killed by high rents, expensive real estate, property taxes and now Corona,” says Joe. Here’s what he means

Well, there’s more, but you get the point. This is why governments have opened the floodgates, thrown out their budgets and are flowing tens of billions into society. Because so many of us are prevented from working, or even going outside, the personal financial consequences are dire. Thus we have an EI overload, the two-grand-a-month emergency benefit, 75% payroll subsidies, industry bailouts, mortgage deferrals and states of emergency across the nation. More to follow.

April’s jobless numbers will surge. So will the virus stats, especially in the US. The meme is growing that Trump miscalculated the pandemic, tried to politicize it, then was trampled by the consequences. It’s possible he’ll go into the November election with the same 10% unemployment rate (or more) that Obama inherited from Bush. Mr. Market is starting to fret about that, but relieved Joe Biden is the opponent, instead of that wild-eyed commie from Vermont.  Sigh.

Politics aside (the virus is also keeping T2’s minority government alive as Tories nix their leadership contest), what should we expect in the months to come? Here are some probables…

  • There’s no way the Bank of Canada will raise rates in 2020 or 2021. Maybe the year after. So a variable-rate loan makes more sense now than it has in some time.
  • Real estate markets in Toronto, Vancouver, Montreal and pretty much everywhere outside of Alberta won’t revive until the fall. Yup, six months. The Royal Bank sees a huge 40% surge in home sales in 2021.
  • Airbnb is done. This should mean more rental units hitting the big cities long-term along with falling lease rates. Tenants are in the driver’s seat. Bad time to be a landlord, but April 1st showed you that.
  • Condos are crippled. Added to the collapse of the short-term rental market is the ickiness factor. Memories of this virus will be long and indelible. Lots of people want nothing to do with germy elevators, communal living, common hallways and garbage rooms or exercise areas coated in bodily fluids. Values will fall.
  • A federal deficit exploding from $24 billion to $180 billion is historic. But here we are. It could hit $200 billion if the economy stays turned off until, say, October. This will be the Mother of All Excuses for a suite of tax increases in the next two or three budgets. Start thinking about strategies now. This pathetic blog will have more to say on that in the days to come.
  • Recovery? It’s a given. Only the timing is in question. Normal life may not be normal for a long while, but the pent-up desires will be huge, and take place in an atmosphere of public relief and historically cheap money. Governments at all levels will want you to spend your rear off in order to generate economic activity and sales tax revenue.
  • Your portfolio will revive. Demand was turned off, and will be turned back on. Markets may plumb new lows and fluctuate dramatically, but if your stuff is balanced and diversified, the outcome is known. This is not the prelude to a depression. Turn off BNN. Definitely turn off CNN. Don’t even think about watching CBC. Virus porn.
  • So, simple. You just need to stay alive until September!

In that vein, I now give you free access to all the infectious disease control experts, public health authorities, pandemic modelers and renowned epidemiologists in the comments section. Enjoy.

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April 3rd, 2020

Posted In: The Greater Fool

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