The predictable

“I’m a dude that’s trapped in Eastern Europe,” writes Marvin, “due to divorce/child custody.” Hmmm. Sounds serious. But I didn’t ask. “I’ve enjoyed your blog for many years, and to be super honest, as I sit in this hell-hole, reading it each night along with your witty remarks makes me feel a little closer to home.”

But Marvin’s perplexed. How, he wonders, in the middle of a pandemic, could Canadians be so weird?

How is that housing in Ontario is still undergoing bidding wars?  A friend of mine is a RE agent in Ottawa, and last night I heard from her that she’d been ‘losing’ deals for the past two weeks, getting outbid even when coming in 80K over asking on residential homes in Ottawa?  This seems crazy.  Ottawa is a sleepy town inhabited by civil servants.  They may have relatively stable jobs, but they’re also not seeing massive increases in earnings year over year.  So what gives?  How the heck are people engaging in bidding wars at a time when the economy is taking a massive dump, unemployment is gargantuan, and everybody is already up to their ears in debt?  None of it seems to make any sense.  I’m somewhat concerned, as I’d like to come home in the next few years, and it seems like I’ll be walking into a situation where buying a home will cost an absurd amount of money (either in the GTA or Ottawa; my two preferred destinations).

It gets worse, M. The latest housing stats out of Toronto this week give the impression people are partying like its’s 2016 all over again. You remember that, of course. Multiple bids. Blind auctions. Drive-by viewings. Unconditional offers. Rockstar realtors. Bully buyers. Greedy vendors. Endless FOMO.

According to the continent’s largest real estate board, the only epidemic is among buyers infected with house lust. The better part of 9,000 properties changed hands in Toronto, an increase last month from May of 84%. Yes, eighty-four. Semis jumped in price by 22% year/year – meaning the average cost of half a house is now $1.3 million. The average property gained almost 12%, while prices of detached passed the $1.5 million market, an increase of 14%.

The realtors point especially to, “a resurgence in the higher-end market segments,” and forecast that by the time this strange year ends there will have been an increase in average prices, just like Covid never came.

Okay, so what gives? Marvin’s quite right in pointing out the obvious, even while he rots in the Old World. Canadian unemployment is in double-digits and will stay there all year. Eight million on pogey. A million mortgage deferrals. GDP hollowed out 12% in one month. Public finances shredded (more on that tomorrow). Empty downtown streets. Travel and border restrictions. Mandatory masks in Toronto. Social distancing. Emergency powers. Why were nine thousand people in one city confident enough to buy houses averaging a million bucks each? Are they not paying attention?

Nah. Of course not.

Regular addicts will have noted this is exactly what the pathetic blog told you would happen. During 100 days of viral terror, lockdowns, quarantines, bumwad-hoarding and non-stop panic from the Coronavirus Broadcasting Corporation real estate sales plunged and prices dipped. Showings stopped. Sellers retreated. The market croaked.

But that was followed by the unleashing of pent-up demand since, after all, Covid came right at the start of rutting season, when hormonal young couples paw the earth, flare their nostrils, bellow, rear back and thunder towards open houses. What normally happens in April this year juiced June. Meanwhile two more factors assured a big jump in prices as sales resumed. First, available listings have crashed – down year/year in Toronto by a third (and similarly in Ottawa, Vancouver and Montreal). More demand and less supply means a surge in values. Second, Covid caused central banks everywhere to crush interest rates and add stimulus to a collapsing economy. So now we have five-year fixed-rate mortgages at just a hair above 2%. Cheap financing means more borrowing, which escalates property costs.

This explains the current situation. What lies ahead?

Here’s what we know so far:

  • Mortgage deferrals will end. No way do the banks want to forego interest on $180 billion in home loans any longer than they much. This means hundreds of thousands of people who have made no payments must start again this autumn. But jobs are slow to return, suggesting many people may bail. More listings coming.
  • CERB can’t last forever. The feds cannot afford this level of support. It, too, will taper away as 2020 draws to a close. Less income support means more tough choices for households without employment. Expect an increase in listings.
  • The pandemic will ease as time passes. Slowly, albeit, but the outcome is known – a slowed rate of infection in Canada, better therapies, maybe a vaccine. Potential sellers will lose their fear of opening their homes to buyers. Yes, more listings.

CMHC and others think like Marvin. The negatives for housing are stronger than the positive (which is cheap money). After the deluge now, real estate will pause and dip until employment is restored. Maybe in 2022. That would mean this is an excellent time to (a) list your property and sell for big bucks to a greater fool then (b) use those funds to seriously trash debt.

Unless Covid taught you nothing.

Blather

Blog dog Dan has way too much time on his hands.  Must be a teacher. “With the help of a javascript and a perl script,” he writes, “I extracted these stats from the comment section of greaterfool for the entire month of June, 2020. Yep, it includes every posted comment for the entire 30 days. It never ceases to amaze me the amount of blather you must weed though daily.”

So last month, Dan discovered, there were 5,366 comments posted on this pathetic blog by 1,204 unique users. (Consistently about 1% of visitors leave comments. The rest know better.) That chewed up just under 3 million bytes (and hours of my life, gone forever). Here are the top 10 posters, by number of comments:

235, Sail Away
165, crowdedelevatorfartz
127, IHCTD9
121, TurnerNation
117, Faron
95, Ponzius Pilatus
78, Nonplused
65, Howard
65, Flop…
58, Wrk.dover

And by the amount of space consumed, the wordiest five (byte count): Sail Away (117,261), Crowdedelevatorfartz (93,243) IHCTD9 (73,431), TurnerNation (71,430) and Ponzius Pilatus (63,922).

Okay, so now we have a better idea of the readers who jobless, unemployable, retired, socially shunned or whose family moved out in disgust. As mentioned here last week, before I went on strike for the weekend, this site’s steerage section has been a cacophonous swamp in recent months, a condition rendered worse by that damn bug.

And that segues into the latest set of predictions. Six of them. These appear to be the defining characteristics of the period lying ahead which, it now appears, could be a lot longer than any of us thought when the snow was still around.

Jobs are easier to erase than create.
It will take years, a decade maybe, before employment returns to the level of February, 2020. Standard and Poors says Canada’s economy will be considerably reduced even after Covid is gone (if that ever happens). In the US, a key Washington agency states unemployment will stay elevated into the 2030s. Yeah, ten years. This blog estimated weeks ago the rate would be above 10% at Christmas. That may be optimistic. The implications for housing are very real. Ditto for Trump.

Rates will be in the ditch for ages.
The big banks have five-year mortgage rates down to barely above 2% now. But inflation keeps falling and the economy shrank 12% in a single month (the decline in 1931 was 10%). It now appears US rates will not rise about their current near-zero level for five years Maybe six. Our guys won’t dare change the cost of money here before the Americans do. So while house loans stay cheap (but credit will be tighter), this crushes savers. HISA accounts, GICs and bond yields will pay nothing, so risk-averse people better hope they already have a huge pile of dough or risk running out of it.

The virus has legs.
Comparatively speaking, Canada has done well. But reopening is slow, cautious, tentative and far too slow to gas the economy or restore small business. Social distancing is becoming the norm. Mandatory face coverings are coming into effect in major cities like Toronto and Ottawa. When my corporate partner announced in early April that its Toronto bank tower offices would not reopen until May 31 it looked extreme. Now it’s July. Still empty. Getting half the people back by September seems a stretch. And what if the schools stay shut? Globally Covid is getting worse, not better. The economic cooling is unprecedented. This is the time to stay liquid and flexible. Above all, eschew debt.

Trump’s toast.
So the latest surveys suggest. As the virus rips through red states, the president’s approval rating declines. His weird, hellfire, us-vs-them speeches surrounding July 4 didn’t help much. Now his son’s GF is infected. A Pew poll found people in counties (Florida, Texas, Arizona – Republican fortresses) where the virus is spreading are 50% less like to vote for Trump. Older voters, 65+, are the same, saying by a wide margin Washington should prioritize protecting people instead of reopening the economy. That’s the opposite of what Trump’s been doing. So as the virus leaves big blue cities (NY, Boston, Chicago) and assaults the Sunbelt and rural US, it’s bad news for the president. Can he survive the triple threats of a public health, record jobless numbers and civil unrest? Unlikely. But it’s four months until election day. Things change.

Real estate is for greater fools.
Low mortgage rates fuel real estate. Unemployment kills it. This is the battle to be waged over the coming months. Big banks have deferred $180 billion in mortgages, but that will end and listings increase. Credit is being tightened. CERB money will peter out. Realtors will coo over surging sales, but this is in comparison to the disaster that was April. In reality, things are more dire. Accepted offers last month in Vancouver were the lowest in 15 years at just 560. Contrast that to over 800 last June, or 1,500 the same month four years ago. “Into 2021 a whole new kind of methodology will prevail,” says analyst Dane Eitel, “the fear of overpaying for a depreciating asset.”

Money’s pumping into financials.
How can stock markets jump more than 40% from March when the virus-whacked economy sucks? This mystifies many people who point to lower corporate earnings, laid-off workers, weak export demand and soggy consumer spending. But it continues. The principal reason is simple: money is flowing where it has the best chance of a return. With interest rates in the ditch, and likely staying there for half a decade, fixed income assets pay diddly. But the pandemic will eventually subside, economic activity will rebound and traditional growth assets will grow again. It seems like a safe bet, despite inevitable volatility. Massive government and CB stimulus will continue. Trump will do anything to win. If you don’t have enough put away to retire on, saving won’t get you there with 0% rates. What choice, but to invest in the financial markets? More gains ahead.

Well, there you go. The future in 730 words. No need to blather. It’s a lock.

About the picture: “Hi Garth. I saw this today as I drove down the street in Burnaby. If you can use it in your blog…..feel free. If you use it, please mark me as an avid fan…. Anonymous :)”