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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 16, 2020 | Pixie Dough

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.

It’s official. Eight more weeks of CERB. Estimated (additional) cost: $34 billion. As mentioned last week, that’s almost twice what the army, navy and air force cost to operate for a full year. Never before has one social program sucked off this much – $94 billion or so by the time the CERB ends and our cerbitude begins.

Surveys show Boomers worry about this stuff. Millennials don’t much. GenZers couldn’t care less. There’s a growing cadre of kids who believe the Bank of Canada is full of pixies who just print money, give it to Justin who then gives it to them. This has a name – ‘modern monetary theory’ – and MMT’s now at the heart of Democratic politics in the US. It’s the rationale for justifying UBI, a universal basic income. In a rich country like America, the progressives ask, why can’t wealth be created for citizens as easily as the Fed spends $250 billion buying corporate bonds?

But the US owns the world’s reserve currency. Our dollars are essentially priced in theirs. Creating more dilutes the value of all existing loonies, which leads to inflation. If you think buying a house is hard in Vancouver or Toronto now, just wait. MMT promises wealth for all, but could end up being a wealth destroyer.

Anyway, the federal deficit is on its way to $300 billion now. Next month there’s an economic statement. In the spring, a budget. In 2021, higher taxes plus an election. Remember the advice proffered here yesterday. Things I’m hearing about: a new tax bracket, some diddling with TFSAs, a higher capital gains tax inclusion rate and a ‘temporary’ Covid-19 tax. Yeah, temporary like income tax was in 1917.

      

The virus has sure changed real estate. Sales plunged in April, staggered back in May and low inventory levels have kept values level. Forecasts of big price declines abound, but housing is an emotion-driven commodity and if people feel confident buying, they will. Even when unemployment is high and the economy unsure.

Insufferable Tyler, a regular blog dog, sends along this report from his Toronto hood:

I have been following the for rent/for sale market for the last two months in Etobicoke.

April 6: For Sale = 5,772; For Rent = 6,302
June 5: For Sale = 7,043; For Rent = 9,444 (22% and 50% up).

“For rent” availability has been steadily increasing but the increase in “for sale” availability is mostly since mid/late May. I wonder if it’s a trend or just seasonality. We’ll see in a few months I guess… An anecdote: in our complex (three buildings) there is usually 1 condo available at any given time. Now it’s 5-6. One 2bed/2bath was originally $3,200/m (May 14). Now it’s $2,850 (since June 3).

Negatives for big-city real estate include the virus (duh) which tarnishes condos, especially those soaring downtown germ factories; the collapse of Airbnb, bring more rentals and listings to market; now-structural unemployment; tighter CMHC restrictions; and banks pissed-off by a million mortgage deferrals and in no mood to give credit to sketchy borrowers. Positives include the lowest mortgage rates in memory; seriously pent-up demand and, well, that’s it.

But what about all these virtual tours and the inability of buyers to actually go and see what they’re purchasing? Surely that is a huge obstacle to selling something as visceral, physical and tactile as real estate?

Nah. No more.

A survey by Ontario realtors reveals 42% of people are open to buying digs they’ve only seen on their iPads. Just a third indicate they want to open cupboard drawers, peer into basement corners, check out the yard, flip around the electrical panel and look behind the dryer.

Of course, this is insane. Sellers and their agents spend big bucks ensuring virtual tours are gauzy, fetching, evocative, compelling, emotive works of marketing art. They stress décor and lifestyle, glossing over or ignoring stuff like amperage, insulation, moisture penetration or if the neighbour raises illegal livestock. Just as nobody sane should buy a pre-con unit from plans with a builder’s contract, nor should they go firm based on a YouTube production. At least get your agent (not the seller’s agent) to walk through FaceTiming the place, and make the offer conditional on a proper home inspection.

Oh, and here are two more reasons to delay buying. Almost 40% of homeowners surveyed had planned to list their homes pre-virus. Now the majority say they’ll wait until Covid is “officially over”. Expect a torrent in the fall. Plus 40% expect prices to fall somewhat or “a lot.”

Sheesh. Might as well self-isolate in the apartment, collect free money and refuse to pay rent. Like the government wants.

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June 16th, 2020

Posted In: The Greater Fool

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