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Discussion Starter #1
Been thinking about this more lately, but I wonder how much (if any) impact the Corona virus will have on residential real estate pricing in Toronto. A few friends have already noticed as they're tenancy viewings have gone down. What are your guys' thoughts/projections for this?
 

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Real estate is a laggy market, but this is a big fat negative. This could cause an extended recession, something Canada hasn't had to live through in a while. Economies are shutting down. There will be job losses.
 

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Discussion Starter #4
Real estate is a laggy market, but this is a big fat negative. This could cause an extended recession, something Canada hasn't had to live through in a while. Economies are shutting down. There will be job losses.
So are you suggesting that a drop in real estate prices within Canada will or will not happen?
 

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Discussion Starter #6
Definitely will drop. Not just COVID, but also the drop in the price of oil as that shock percolates through the economy.
I've been out of the real estate space for a while, so this will be a welcome drop by me. Do you have any skin in the real estate game?
 

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COVID 19 will have a devestating impact on the economy.
Many areas closed a lot of services, sports, that's huge economic activity.

Bars and restaurants, and of course parents at home with kids.

Finally, there will be a significant reduction in demand.
 

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So are you suggesting that a drop in real estate prices within Canada will or will not happen?
I would suggest that it is already happening. Stories of bids being pulled are circulating. I know people who were interested in buying a few months ago who are now waiting. They might buy, but given foreign entry is prohibited, oil crashed, recession certain, wouldn't you at least want a good deal? Would you really pay a record price as tens of thousands of homes complete construction or come for sale every month and people won't even be leaving their houses to go look at them?
 

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Real estate prices in Canada tend to be stickier than in the US because we don't have the free and easy loans, nothing down type deals etc. When demand drops most people who have a house for sale just fold their arms and stick to their price, very few will give a significant discount they just wait it out. In 2008 when US real estate was crashing 30% or 40% Ontario experienced a mild dip of 10% or so that only lasted a month or two.
 

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During the 2008 recession, US home prices dropped up to 70% in some places In some places homes became worthless.

I remember Youtube tours through new subdivisions with rows of abandoned homes. Inner cities were knocking abandoned homes down.

The projection of a 20% unemployment rate and a minus 25% GDP would make this situation much worse than it was then.

These are the worst numbers since they began recording them in the 1960s. The numbers could get better or they could get worse.

The question is how long before a vaccine is discovered. They say 1 - 2 years. The economy will collapse if it takes that long.
 

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Canada escaped the worst of the 2008 recession because we didn't have the same systemic problems.

This virus"effect" is the same in Canada as the US and everywhere else in the world. There is nothing that will make us different this time.
 

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And some here have said my posts sound gloomy.

Today on cmf, we have read about how even dividend stocks might trim dividend payouts, j4b has predicted "ruin" for just about anyone who owns real estate; this thread is similar and portends an even more broad-based economic meltdown (which makes more sense; why just pick on real estate, stocks, bonds, or any single asset class).

Perhaps investors like j4b have it right, gold will be king. Cash will be coveted only as toilet paper. No one will care about having food, a place to live, or much else, if they can have gold.

Perhaps our governments should be converting some abandoned buildings to gigantic disintegration chambers (a la mode de Star Trek "A Taste of Armageddon" episode) to which those who have had enough can report to be humanely put down and their misery ended. The lineups will probably be long until production can get up to speed. Reserve your spot now. And forget about cancellation insurance.
 

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As I just posted in another thread, I think that COVID-19 will not only make RE prices fall, but also pop a ~ 20 year housing bubble. The credit crunch has already started.

Mukhang mentioned sounding gloomy. I don't think there is anything inherently gloomy or negative about prices normalizing and falling back to reality.

Let's take a moment to review the various negatives from overvalued (bubble) real estate values: first, homes are totally unaffordable. Many Canadians really can't afford buying a property, and those who do buy often end up with unsustainable debt burdens. But the real estate bubble has warped so many other elements of the Canadian economy. We've become a country where a very significant % of GDP is tied to housing (RE services, construction, remodelling, home renovation, financing, brokers). We've also had many highly leveraged RE speculators who have been pushing up markets to unhealthy levels, and getting filthy rich in the process. We've got RE developers who have gotten way too rich from all this, also bullying cities and disrupting city planning, taxation structures, and generally causing societal damage... all because of their greed, and the power they gained from a runaway bubble.

These are all unhealthy excesses that need to be corrected. Popping the bubble is good news. Flushing out the excesses is good for Canada. Deleveraging is good.

So I welcome the price discovery and price normalization. What's the big deal anyway? People who own their homes will still own their homes. So the prices come down a bit, maybe 20% or 30%. What difference does it make? This mainly hurts highly leveraged people and those who got greedy.

This is not bad news. As for the comments about my view on gold or whatever... I do not foresee anything particularly dramatic happening. Not at all. I own stocks, bonds, gold, and would like to own real estate too. The economy will continue to run, people will work, real estate will still have value, and gold will be just another asset to diversify a portfolio.

And I really don't think it has much to do with COVID-19. It really could have been any kind of shock. Could have been a European banking crisis, a standard domestic recession, a derivatives blowup. Anything, really. The virus is unfortunate, but it did not cause this situation.

Canadian RE was in a bubble and was going to burst eventually due to some kind of shock.
 

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So I welcome the price discovery and price normalization. What's the big deal anyway? People who own their homes will still own their homes. So the prices come down a bit, maybe 20% or 30%. What difference does it make? This mainly hurts highly leveraged people and those who got greedy.
That's where you are dreadfully wrong. Yes, it will hurt those people first. So they will be forced to cut spending elsewhere. Good for the greedy bastards you say? Well, I agree. But that spending they cut means jobs will be lost elsewhere. Those people will have to cut their spending. More jobs will be lost. etc. People will be hurt by this who were in no way greedy.

If it was being done when the economy is growing, it wouldn't be so bad. It would probably help the places unable to find employees. But of course bubbles rarely pop when everything else is going well.
 

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That's where you are dreadfully wrong. Yes, it will hurt those people first. So they will be forced to cut spending elsewhere. Good for the greedy bastards you say? Well, I agree. But that spending they cut means jobs will be lost elsewhere. Those people will have to cut their spending. More jobs will be lost. etc. People will be hurt by this who were in no way greedy.
What you are describing are the consequences of allowing bubbles to develop in the first place. If we don't want these swings in related jobs / spending and the collateral damage, then we have to learn going forward and prevent asset bubbles from occurring.

That means changing the way the Bank of Canada works so that they don't do this to us again -- keeping insanely low interest rates for so many years. The BoC knowingly and deliberately pumped up real estate prices. So did government, via CMHC and various policies to "make home buying affordable".

Economists have a mindset that home prices must not be allowed to fall, and they've been working for over a decade now to engineer that. Let's call them out on it for once! Look at the damage and destruction that will result from these horrendous policies that are committed to making asset bubbles.

I know there will be collateral damage and I don't feel good about it either, but that's what you get when asset bubbles occur.

If it was being done when the economy is growing, it wouldn't be so bad. It would probably help the places unable to find employees. But of course bubbles rarely pop when everything else is going well.
Right. Bubbles don't pop at convenient times.
 

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By the way, this argument that "others will suffer and lose jobs" is exactly the justification everyone has been using for the past X years for keeping the bubble going -- low interest rates and other housing stimulus.

It's the threat that is raised by industry (developers, brokers, financiers) every time the party is in danger of ending. The lobbyists show up everywhere and start screaming for even lower interest rates and more stimulus. Economists generally agree, and the Bank of Canada dutifully listens and drops rates further.

So I've heard this before. This it the argument for pumping the whole thing back up to keep the party going. If that's how society wants to tackle this problem FINE but we have to then have a common understanding that we will inevitably get a giant crash and tremendous job loss, because that is the inevitable consequence of that line of thinking.

In the coming months, media will be full of people saying we need to stimulate and inflate the whole thing back up now. Write down the names of everyone saying this and put them in a file. These are the people who are signing us up for even more catastrophic normalization down the road.

Then, once the catastrophic normalization occurs (now perhaps?) open that file and look at the people who caused this situation. People like Mark Carney (BoC). Hold him to account. Bring him back to the media, interview him. At least make sure he never gets a job as an economist again so that he doesn't cause more destruction and job loss.
 
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