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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

October 4, 2020 | The Bestowal

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.

In a few days it’ll be a Thanksgiving as never before.

Seven months of pandemic. A shortfall of $350 billion in Ottawa. Mortgages at 1%. A real estate boom in a recession. Business failures everywhere. Grounded airplanes. Black Lives Matter and Proud Boys. Masks everywhere. The American president hospitalized. A second wave.

And yet we are thankful. Life is lived in degrees, not absolutes. In comparison to so many, we remain blessed. Blog dog William sends along a reminder.

So I’m sitting with a long lost friend who I discover is homeless in Toronto. After long discussions about how a CAnada Pension Plan check just doesn’t cut it in the big smoke … or which food bank is the best …. or which public library is prepared to look the other way if you’re  having a nap after having been on the street all night, I decided to try and cheer up my friend.

“Do you have a credit card?”, I asked him. “Of course not”, he said.

“How about a car loan?”

“I have a used bike that weighs a ton — but no car loan”, he replied.

“A mortgage, HELOC, loan of any kind?” I pressed on.

“Duh!!  I’m homeless — why would I have a mortgage — and no I have no other loans!”  he said.

I asked if he had money in his pocket and he took out a wrinkled $5 dollar bill. “That’s good”, I said.  “Now straighten out the wrinkles and slam that 5 bucks on the table like a big time operator!” I commanded.

He slammed the table hard Enough to gain a few stares from  nearby tables

Then I said to him, “Congratulations — you’re in the top 1/2 of the Canadian population in terms of personal net worth — your assets are greater than your liabilities…. now let’s work on your cash flow”.

He smiled and we raised a glass.

          

Look at those property deals going down. Record prices in the GTA. A 53% surge in offers in Vancouver. Hell, even in Calgary – ground zero for moaning and vexing – transactions last month up 34%, prices ahead 9% and listings down by a tenth.

The cheapest mortgage rates ever have played a part. WFH is a thing many believe is permanent (silly them). And above all, nesting is the driving force behind the most improbable housing bubble in modern history. The hasty exodus to the burbs continues apace. Look at southern Ontario, for example. Sales are up 18% in 416 – which used to be the crown jewel of the region – while they’ve surged 50% in York, 55% in Durham, 45% in Peel and 73% in Halton, where the cattle are buried. Same pattern in the LM – but in Vancouver, notably, condos are not being abandoned at the same rates as in Toronto. (Urban rents have now dropped well over 15% in the Six. More to come. Landlords are punked.)

But, but. Is this a market surge teetering on capricious emotion, not rooted in manly economic facts?

Of course. And you should eschew it.

Toronto broker and real estate franchise owner Marvin Alexander raised the alarm with his colleagues a few days ago. Writing in an industry mag he reports a ton of buyers (thirty last month alone in his shop) are buying houses, winning bidding wars, then not showing up with deposit cheques – throwing the process into chaos.

It’s “a startling trend that started becoming apparent about three months ago but has since ramped up to the numbers we are experiencing now,” he says. And while a buyer may have agreed to a firm, unconditional purchase, by not coughing up the deposit cash he can walk away without consequences. That’s because the jilted seller, in order to find legal remedy, must (a) wait until the agreed-upon closing date passes – weeks or months later – then (b) begin proceedings which will take months more and (c) wait for a judgment until the property sells again, which will only come if the subsequent sale price is lower. Then (d) he must try to collect. And good luck with that.

Why is this happening?

First, the market is insane, irrational and emotional. People make stupid offers in a contested situation, then think better of it when the morning comes. Second, lenders tell buyers they paid too much and won’t finance the deal. Or, third, desperate greater fools make multiple bids on several listings, thinking they can decide later which property they want (if successful). In any case, it all underscores the fragility and flakiness of the current situation.

By the way, did you catch the news about bubbles? The latest UBS global report lists the GTA as the No.3 Stupidest Place on the Planet for property prices, even way ahead of YVR (only Munich and Frankfurt are worse – but have lower ownership rates). So Toronto now is at significant risk of a “sharp correction” because of the unprecedented price romp in the middle of a pandemic. Thus UBS joins Moody’s and CMHC in sending up the warning flare.

But nobody ever cares. Until it happens to you. Like in the Rose Garden…

          

Donald Trump says he feels better (with the best medical care in the world). He has yet to tell people his infection underscores the need for social distancing and mask-wearing. We’ll see.

Meanwhile, says Scotiabank, this is what his infection has done to the odds of winning next month’s election.

We’re into some uncharted waters now. Markets will be choppy and volatility enhanced. You may be tempted to go to cash, day trade, stockpile bathroom tissue or even buy a $900,000 townhouse on some treeless street of ennui in suburban Milton.

Don’t. You will be thankful.

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October 4th, 2020

Posted In: The Greater Fool

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