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So what do we make of all this irrational house buying?

Updated: Dec 10, 2020

Banks are coming out, late as usual, and acknowledging (BMO, Scotia, TD etc.) that 2020, despite Covid, is going to be one for the record books for Canadian real estate. Okay, hard to argue that. They suggest this in part due to a few things.

Let’s start with inventory. Across the country there’s only a 2.5 month supply of houses for sale. In fact, in a bunch of major centers there are just four weeks or less. This is historic. Listings have shrunk while demand has swelled. Sales and prices have belied the fact (or we have just been too house horny to realize) that life is terrible at the moment. 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 foolish.

But if I was part of the house horny crowd buying up and speculating on new developments, or flashing some cash in the burbs to set up my new work from home pad, I would also be thinking long and hard about balancing my wealth. It is not enough to simply have cash, bonds, stocks and a wing and a prayer housing portion. You need to have other assets in your portfolio with a track record of performance during uncertain times.

So, in the meantime, what happens next?

Well we know the big trends so far…

  • The stock market continues to fare well this year. Both in the US and for the most part here at home.

  • At the time of writing this blog post Gold is UP 20% while Silver is up 30% both year to date.

  • Federal Debt was scheduled to grow at a “Harperesque” rate of approximately $54 billion (similar to the great crisis of 2008/2009) but is now looking to dwarf that amount and rise $380 Billion into the “Liberalesque” zone - a surely never to be beat again, all-time high.

  • Covid has killed condos. Renters retreated as urban jobs vanished. Airbnb has basically fallen off the face of the Earth and investors are bailing.

  • Bans on evictions and rent controls paddled landlords. And as elevators became mobile chambers of death, owners bolted.

  • City rents have fallen, about 12-17% on average. Condo prices have dropped, and continue to do so. No bottom yet in sight.

  • Nesting, working from home, 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, hicksvilles, waterfront hinterlands and beyond. For example, sales/price increases in the vacuous wasteland of the 905 now routinely eclipse those of the urban 416. Beemers have been beaten into Hyundais. From Bradford to Sandwich West detached home prices have sky rocketed.

  • 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 away from the end of this wretched 2020 and the start of something better in 2021 where hopefully the virus will not continue to wreak havoc. Thankfully, we’re a lot closer to herd immunization now that at least three vaccines have been proven effective and safe. (BTW, if you think you’ll avoid being vaccinated, dream on.)

So what could the potential end of the pandemic mean for all this crazy housing change?

Assuming most people are jabbed by this time next year, we can make several assumptions. First, the economy will be far, far different. Better is relative to the point of view you have about debt and how you perceive better.

The virus damage will still be evident in many failed businesses, but the vax will have allowed investment to reappear amid increased confidence. I will say this though: I do very much suspect, like housing, that there will be pent up demand for all things. Folks will want to get out of dodge for that first hot climate getaway and Florida will return to its spot high atop the perch as the Snowbird destination. Going on cruises, dining out, watching sports games in stadiums, concerts and yes, going back to the urban centers as WFH begins to sizzle out.

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 2022/23 than they are now. Probably by a lot. The suburbs will both be at risk as well as in some cases hold their price increases, but they will eventually 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 long gone. Interest levels will not explode, but the price of a home loan could easily double.

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.

Finally, don’t forget about that debt…the amount of spending they will preach as the savior of our economic engine it is not. Mainstream analysts will predict rosy returns and a sense of “normality” about economic growth, but they will be wrong. Your children’s great-grandchildren will be dealing with this mess and let me tell you that the rest of the world is watching right now waiting to sink their massive fangs into natural resources, and all things “Canadian” that we have become known for on the world stage. It will be a fight worth fighting but not an easy one to survive. You see all this debt CANNOT be paid off. It is impossible. Accept this now and expect it to be a bumpy road.

There is one thing you can do if you are in a position to do so, with either existing money, or income to support it. That is to understand that we suspect uncertainty about all of this will continue to push the masses and the mainstream to discuss and grow increasingly fond of physical Gold and Silver, and that as they do their prices will be hyper-stimulated. It will take only a 1-2% increase in the amount of people who are exposed to Gold and Silver to double the demand, and in doing so take their respective prices two, three, maybe more times higher.

(As a reminder to the reader Gold and Silver’s track record since I began in this business way back in 2004 have been outstanding, both managing to average 10-12% per year cumulatively.)

The best is yet to come. #GotGold?

Yours to the penny,

Darren V. Long

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