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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 14, 2021 | The Bonfire

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.

Sometimes it makes sense to step away. Would that be now?

In the last two weeks this blog has detailed some of the excesses of our pandemic world. In fact, most of the irrational behaviour flows directly from the virus. Governments and politicians have gone extreme. Shut-in, restricted, locked-down and quarantined citizens have made wild choices. Fear of sickness, isolation from work colleagues, job loss, media hysteria and a sense the world has changed irrevocably in 12 months are having an impact on everyone.

The results? They’re everywhere.

Pandemic loneliness created a puppy boom. Lockdown boredom helped fuel Reddit stock boards, Hoodies, GameStop, covered calls and rank speculation. Tesla shares are at 900 times earnings. Bitcoin exploded, even when it’s backed by nothing and will inevitably blow up. A Beeple digital artwork just sold for $70 million. NFTs and sports cards are soaring in value. Building materials and lumber are up incomprehensively. And recently almost every house that sold in mid-town Toronto went for $2 million or more.

None of this is normal. It all traces back to the pandemic.

We’ve focused a lot recently on real estate. No wonder. It’s the aphrodisiac of the masses. The most popular Canadian asset. Life’s very raison d’être for the entire moister generation. And lately it’s been gamified just like stocks. What started a few months ago as a shelter from the viral storm has turned into a financial play. Using big leverage and shouldering large risk, buyers tell each other prices will never fall and rates never rise.

The results are terrifying, in these two ways.

First, of all the properties sold in the GTA (the nation’s largest market) last month, almost 80% changed hands above asking – for more money than the sellers had demanded. This is historic. An unprecedented jump from the 25%-over-ask level of a few months ago. It drove the average price for all properties over $1 million in the last few weeks, and fueled a 46% sales jump. Condo deals, by the way, erupted 52%.

Here’s what the surge looked like, thanks to realtor John Pasalis (who hates me):

And what happens when eight in ten houses sell for more than vendors requested? Usually with multiple bids in blind auctions? Yup – asking prices rise. The odds are that March, and then April, will see the largest ever year/year inflation with household debt levels increasing apace.

But – terrifying fact # 2 – this is not contained to the idiots who live in the metropolis. It’s everywhere.

Rising prices, accumulating debt and crashing affordability are the daily realities in London, Kamloops, Halifax, Kingston, Victoria and all of the little Hopes, Owen Sounds, Guelphs and Airdries in between. Convinced WFH will last forever, that ‘the government’ will not allow mortgage rates to rise and it’s a smart thing to chunk all of your net worth into a single asset on one street in one town, legions of Canadians are stocking this bonfire of the viral vanities.

As behaviour finance teaches us, the more that abnormal things look normal, the more everyone believes they’ll stay so. And they pile on. New mortgage debt is running at $10 billion. A month.

As it is with houses, so with tech stocks, baseball cards, crypto or some dude’s blockchain JPEG file.

What next?

More of the same. It’s not over. It won’t be until herd immunity is achieved this autumn and the economy achieves near-normality. Then a lot will change.

Growth, inflation, wages and interest rates will all increase. Government and CB stimulus programs will be scaled back. In fact the Bank of Canada is likely to start next month. Mortgages won’t be 1.5%. Or even two per cent. Large numbers of people who thought they’d never return to the workplace will be called back. Cautiously and sporadically at first. Then largely as before. This experiment is over. For many companies, it failed.

The virus caused our current delusion. When it goes, expect revolution.

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March 14th, 2021

Posted In: The Greater Fool

One Comment

  • Steve says:

    “most of the irrational behaviour flows directly from the virus”

    It’s got nothing to do with the virus you nitwit.

    This is tyranny long planned in advance. North America is rapidly becoming a Soviet dictatorship run by cucks like the soyboy Trudeau and senile Biden. You finance peope never get it. Like Lenin said, you will sell the rope to hang yourself. Wake up for God sakes!

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