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November 20, 2020 | After the Deluge

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.

This week BMO (which flogs mortgages) says this will be a boffo year for real estate.

Hard to argue that. Just look at inventory. Across the country there’s but a 2.5 month supply of houses for sale. In a bunch of major centres, just four weeks or less. This is historic. Listings have shrunk while demand has swelled. Sales and prices have belied the fact life sucks. So many people have been so willing to get so much in debt when things are so bad. History may show they were courageous, or just nuts. Let’s wait and see.

Meanwhile, what happens next?

We know the big trends so far…

  • Covid killed condos. Renters retreated as urban jobs vanished. Airbnb croaked and investors are bailing. Eviction bans and rent controls spanked landlords. And as elevators became mobile chambers of death, owners bolted.
  • So city rents have fallen, about 15% on average. Condo prices have dropped, and continue to do so. No bottom yet.
  • Nesting, WFH, that new puppy and the need to social distance from your spouse led to a big rush into detached housing. Anything with dirt and a door to the street has been an object of desire.
  • The virus also made sane people have delusional thoughts, like they’d never need to commute again. Hence the exodus to the burbs, the sticks, the hinterland and beyond. For example, sales/price increases in the vacuous wasteland of the 905 now routinely eclipse those of the urban 416. Porches have been beaten into Pacificas.
  • Household debt has plumped as mortgage rates hit bottom. Once again cheap money allowed average home prices to jump. Lost on many has been the fact emergency rates are with us because, ahem, we have an emergency.

So, here we are a few weeks from the dawn of 2021. The virus is ripping us a new one. But, thankfully, we’re a lot closer to herd immunization now that at least two vaccines have been proven effective and safe. (BTW, if you think you’ll avoid being vaccinated, dream on.)

What could the potential end of the pandemic mean for housing?

Assuming most people are jabbed by this time next year, we can make several assumptions. First, the economy will be far, far better. The virus damage will still be evident in many failed businesses, but the vax will have allowed investment to reappear amid increased confidence. Folks will be flying around in Max 737s. Going on cruises. Eating out. Watching games and concerts. And, yes, going to work.

Downtowns will rekindle and repopulate. We’ll remember why people want to live in close proximity to great restaurants, clubs, arenas, theatres, galleries and stores. Offices will reopen in stages. The giant buildings will adapt. Workers will be expected back on a rotational basis, if not full-time. WFH will go back to being a some-time reality, not the norm. Commuting will be a thing again.

Condo prices and rents will be higher in 2022 than they are now. Probably by a lot. The suburbs will retain their price increases, but lose their appeal to the masses. As the GDP expands and the impact of government over-borrowing is felt in the bond market, yields and mortgage rates will increase. The days of 1.5% loans will be gone, gone. Interest levels will not explode, but the price of a home loan could easily double. In the Roaring Twenties prediction comes to pass, we’ll be headed much higher.

The bottom line is that Covid made most housing less affordable. The vaccine to kill Covid will probably do the same. We will emerge from this with real estate even more of an acute symbol of the wealth divide in our society. That’s been bolstered by the reality of 2020 – wherein the bulk of job losses were among those in essential or lower-income jobs, while the white collar WFH bourgeoisie just went online, got a fat mortgage and moved to a ranch bung in Mississauga.

None of this is healthy for society. We become less diversified. More indebted. Less liquid. More immobile. The young are disenfranchised. Wealth is consolidated. And governments have a far better idea of where to go for the new tax revenue they so desperately need in a post-Covid world.

More on this, soon.

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November 20th, 2020

Posted In: The Greater Fool

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