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August 17, 2020 | In Praise of Urbanity

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.

Lots of people, many of them young, think like Dave.

“Maybe the pandemic just brought what was coming down the road to our front doors now,” he says, musing on where cities are headed.” He sends me this article about a New Yorker who gave up on NYC.

“Do you think NYC is a model that could be repeated in other cities; Chicago, SF, LA, Toronto, Vancouver, etc.? It’s no secret many sectors discovered by the pandemic shutdown that work tasks could and are being done well remotely, aka home. And both employer and employee like it. Large shopping malls have been like the walking dead. Just no one told them to fall down.”

The core-is-dead, flee-the city meme has legs these days, after almost six months of Covid, social distancing, Zooming, shuttered offices and now universal masks. Real estate investment trust values have been whacked (unfairly), cottage-area and rural property sales have exploded, urban rents are declining and condo listings have been stacking up fast, especially as Airbnb operators give up and bail out.

The latest numbers paint quite a story: rental listings in Toronto, for example, grew 82% last month year/year, pushing rental rates down. In fact there were almost twice as many vacant apartments/condos hitting the market (8,346) as there were people singing leases (4,400). This is a big departure from years past.

And, yes, you can blame Covid. Students are staying home from uni. Tourism has tanked so short-term vacation rentals are being dumped. Immigration’s been curtailed. And thousands and thousands of units are being occupied by people who stopped paying rent months ago. They’ll soon be punted, adding to the rental supply.

As for condo sales, more tough news. The number changing hands in Toronto in the second quarter of the year tumbled 51%. “The condominium apartment market experienced a dip in sales and new listings,” says the real estate board, “as many potential buyers moved to the sidelines as a result of public health measures taken to combat COVID-19 and the resulting economic downturn.” In the last three weeks, realtors report, listings have jumped, big time. As of today, buyers have more than 5,500 choices

Meanwhile the bejesus big Bay Street office tower housing my Toronto office is still essentially shut. All 68 stories. Ditto for the miles of stores, eateries and services in the underground city which lies beneath Toronto’s downtown streets. The major banks have said staff won’t be returning to the financial core until some time in 2021. Up the street major stores and the Eaton Centre are open, but you can drive a herd of F-150s through and not hit anyone. The subway is running at 20% passenger capacity and at the airport traffic is down 92%. The last reported unemployment rate for the country’s biggest metro area was 13.6%.

So is the city pooched? Will malls never open again? Transit lines be abandoned? Condos and offices stay vacant? Will dramatically higher taxes and user fees – required by a bankrupt city – be the death blow to real estate in a place where crappy houses trade for $1.6 million?

Recency bias says yes. This explains some of the above. What people see now is what they expect will always be the case. It’s why we always buy high and sell low. Vision never was a strong suit of the masses. As you age, you learn this. Normal is normal for a reason.

So time for a reality check.

While this blog correctly forecast this urban mini-exodus and falling per-foot condo valuations, thanks to the way the virus has infected our brains, this is not a permanent thing. People flock to cities for a reason. The best jobs are there. The highest incomes. Culture’s concentrated in urban settings. Art galleries. Clubs. Live music. Public institutions like museums, the Zoo and Drake’s ridiculous house. Sports arenas. Convention centres. And urban infrastructure – public transit, airports, expressways, parks – none of that will ever be replicated elsewhere.

People want to live with other people, in proximity to work, shopping, entertainment, schools, universities, medical services and in an environment where they can expect to see a cop, a paramedic or a firefighter in mere minutes. Many eschew cars and the huge costs associated with them. They want bicycle commuting, or the ability to summon a cab or Uber. Families need daycare services. Oldies need social services. Lots of folks still go to banks, or grocery stores, coffee shops and want a vet within a few blocks of home.

Cities developed for reasons. For thousands of years they’ve been humanity’s preference and the absolute cradles of civilized society. A virus which so far has infected less than 1% of the population and from which 95% recover, lasting six months (and counting) is not going to change any of the above. Sure, a bunch of people will flee to Huntsville, Hope or Ladysmith, but there is no mass exodus underway. This is a social media fling, picked up by the lazy MSM and propelled by blogs which (unlike this ethically pure and virginally transparent, selfless site) are written by people justifying their own myopic actions.

So why not take advantage of this meme as it barrels along, gaining traction? More on that soon.

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Did you catch the rate news on the weekend? Yup, this is getting ridiculous. Money is next to free. Competition among lenders desperate for market share has produced some numbers that a year ago would have seemed like fiction.

For example, the micro-aggressive dudes at HSBC have dropped a few more basis points, and now offer a high-ratio, five-year fixed-rate home loan for just 1.76%. Scotia’s weird eHome mortgage is available at just 1.73% (also for insured loans) while BeeMo  has the lowest advertised rate among the big banks at 2.07%. Tangerine’s fixed-five is at 1.99%, and some brokers are beating all of this by a few points.

Conclusion: if you’re borrowing, lock in. The space between variable and fixed is gone. The central bank has indicated rates have bottomed. This damn pandemic will eventually pass, growth will resume, absurd government spending will help breed inflation and rates will have to edge up to deal with that. By the time 2025 comes you will wonder how 2020 ever happened. And why you did not act.

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August 17th, 2020

Posted In: The Greater Fool

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