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16 Apr

House Prices during COVID


Posted by: John Hamilton

Let’s have a discussion on residential real estate values. I have tough skin so go ahead and critique. I know a few of you will be all over this one 😊

It seems to me the flavor of the day social media experts are saying real estate should be crashing.

Before COVID, I would have agreed. Personally, I was thinking while a correction was well overdue by 2-3 years, that was not coming to fruition. I’m the bear who expects the 10-year cycle.

An anomaly showed up a few years ago that was all about making the economy great again. Right or wrong with all the crazy tweets, he got the votes. And while debt levels kept going up, more people were back to work. And that was all that mattered to them.

Recently, personal debt levels actually started to decline, if even slightly. Maybe worried about where the economy was going, they stopped spending on frivolous things.

And then this virus showed up. Most countries locked down. Very recently we are hearing of the handful of countries that didn’t. And we are seeing the results of that.

4 weeks into lockdown and people are getting fed up. As humans, we really only care about the micro world of ourselves and our own situation. And we have stopped spending money. We aren’t coming home at 8pm stopping for pizza after a long day at work. We are cooking for ourselves. Better nutrition. Cheaper meals. We are leaning to stop spending frivolously. Kind of like having Sundays the way they were…

I keep hearing unprecedented. That means we’ve never seen anything like this before. So we can’t compare this to the great depression. Governments didn’t print billions of dollars in the great depression. The argument about all that debt means nothing to the 50% who vote for socialism. Right or wrong we have never worried about cost of taxes to our kids in the future and we can’t take that into consideration now.

6 weeks ago, the analysts on Bay Street should have been sitting at the boardroom warning about prices of houses due to Covid. Unless I missed reading about it in mainstream media, it wasn’t discussed. So here we are about 2-3 weeks from opening things up slowly, and prices of houses keep going up.

Supply and demand. Bread and butter of everything. No one wants people coming through their homes, so they don’t list. But there are some that for whatever reason, they must buy. So now we are seeing multiple offers above asking.

The sky isn’t falling. We are ¾ the way through this mess and still no price reductions. What about all those who lost their jobs? Sure the restaurant business is done. Never was a big money maker. You know that if you were trying to get financing on a mixed use with a restaurant on the ground floor. And generalizing here, but servers are renters. The supply chain to restaurants is done as well. But the volume of product is still the same, just changed to a different delivery system, to the grocery store. Hell, I’m sure the volume of food is higher based on memes of weight gain.

The stock market can’t make up it’s mind and it’s supposed to tell us 6 months in advance where things will be.

So in 2 weeks we start easing up a bit. And there is all that money the government threw at us. Unprecedented. Will there be hyperinflation? Housing is still a leading economic indicator. Mortgages are deferred at 3% cost to carry for 6 months. Negligible to the average guy.

Imagine living in the city in 750 square feet with your family of 3 on the 20th floor. Right now, they’re thinking about getting a backyard garden. New construction has stopped so that will kill more supply. Things will have changed dramatically for many. More office managers will tell the staff to work from home. Meaning more commercial space available to the point of selling. Maybe those offices can be converted to condos? Immigration still the same. Probably going higher over next couple years. And that anomaly in the states will do anything to win in November.

But all the many changes that will occur in the next few months are still no argument for price reductions. I’m seeing lots of opinions why but not backed up with facts, just opinions.

Ok, go ahead and tell me why I’m wrong.