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February 4, 2021 | Juiced

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 will be a rutting season unlike any other. But will the hormonal beasts pawing and trampling their way through the suburban underbrush be making wise nesting decisions? Maybe not.

Let’s review the facts.

Non-urban real estate has been goosed beyond reason by the slimy little pathogen. Houses in godforsaken places like Abbotsford and Scugog, Squamish and Caledon have seen massive increases in sales and prices. As this blog has detailed of late, crazed people are paying a million for a semi in Pickering and well into seven figures for a particle board factory house in Milton. Even Nanaimo and Kamloops are smoldering.

In fact, the virus has caused the absolute reverse of a long-standing rule, “drive until you qualify.” Now house price increases are the greatest the further you stray from urbanity. Look at the Ontario experience – places where it’s impossible to commute from (Guelph, Kingston, Woodstock, Barrie, Waterloo) have seen double-digit hikes, shocking the locals. In far-flung King, for example, sales jumped 75% in the last nine months and prices climbed 20% – al the way to $1.798 million. Yeah, to live with cows. The average in Caledon is now $1.3 million. And it still takes an hour in light traffic and a fast car to get downtown.

But wait. The core’s dead, right?

Not so fast, says a new report from the geniuses at CIBC. When Covid crashes, the economists believe, the suburban thing may come down with it. “Should COVID fade into the background, as is expected, the vibrancy of cities will return and so will the demand for housing within them,” they state. “Workers who think they’ll be allowed to work remotely forever may be making a bad bet. The question for many employers is not if they will end work-from-home policies, rather it’s simply a question of when they will require employees to return to the office.”

Whoa. Drive from Abby to downtown YVR every day? Or face a trek from the top of Death Highway 400 back into Toronto’s core? Are they nuts?

Well, here’s the argument…

  • Workplaces will reopen quickly and routinely once the herd is dosed, like in Q3 of 2021. After all, employers have been sitting on expensive real estate for more than a year, and have watched worker productivity crash as people get comfortable spending hunks of their days with dogs, kids, groceries, yoga & laundry. And gin.
  • The reopening might well be on a hybrid basis – two or three days a week. But still, what a change that will be for the sweatpants cohort.
  • Cities are coming back. Repopulating offices will do that. So will the ending of lockdowns that have crippled service industries, keeping bars, retailers, restaurants, gyms and hair salons shut. Plus immigration. The feds plan on making up for virus restrictions by allowing 400,000 new Canadians to join us. Most will be urbanites. They’ll need places to live.
  • “The population numbers make the case that fundamental demand for city living wasn’t as bad as perceived,” says CIBC, “and some of the fears surrounding downside risks for real estate tied to urban population growth might be overdone.” You bet. As detailed here yesterday with recent city condo sales stats, it’s already happening.
  • As the virus fades, tourism will return. Plus business travel. And pro sports. All of that is urban-centric and none of it involves horses, tractors or root vegetables.
  • The escalation in suburban and Hicksville real estate was so extreme, so sudden, so overdone, that the traditional price differential between urban and rural properties is gone. So if you have to commute 100 km to get to work, shortening your life, why not just move back into town?
  • The economics of real estate are about to change. Interest and mortgage rates will be rising far, far sooner the most people realize. No spike, but the start of a gradual tightening that will change property pricing as more potential buyers are punted. Already, as National Bank points out, the average family can’t afford the average house as it takes 5 years to save a down payment. This is the worst situation ever. It tops the 1989 real estate apex, which led to the 1992 housing crash.
  • So? Lower affordability and declining valuations for non-urban property mean the universe of buyers for houses in the pastures and distant cities will shrink. Fast. Likely in 2022.

Hmmm. It suggests some surprises may be in store. If a temporary but intense event like a global pandemic can cause this weirdness – large-scale WFH and rural real estate escalation – then its exit can bring the opposite. It also begs a question: how could so many people be so naïve as to believe they’d never go back to work, continue to be paid, and could move to a bucolic glade in the woods? Have the folks stampeding into bidding wars for hinterland houses that inflated 50% or more in ten months lost their minds?

Well, it’s February. Spring cometh. As we say on this pathetic blog, be careful when the saps flow.

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February 4th, 2021

Posted In: The Greater Fool

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