Hanging on

All virus, all the time. How else should this miserable year end?

Blog dog Darren has been ‘trapped’ in Zurich for most of the year, unable to travel back to Canada, he says. It’s scary. “This is Coronavirus land . . It’s not a joke here (more than 1% of the population got the virus last week alone) but at least it doesn’t make the first page (or even the first 6 pages) of news and everything is open.”

In the US new confirmed infections are about to top 150,000 a day, just a week or so after they passed a hundred grand. President Trump continues to obsess about winning the election he lost, while hospitalizations explode and deaths snake higher. Estimates are for over 400,000 fatalities by March 1st, and a Biden presidency born into crisis.

In Toronto almost everybody has a mask, almost everywhere. Empty storefronts along prime retail strips speak to the devastation of this bug. Today I walked a long, long stretch of the glitzy underground pedestrian money mecca called the Path. Crickets. Deserted. Over $3 billion in annual economic activity from this one strip of eateries, clothiers, cleaners and retailers, gone.

The PATH, downtown Toronto. Friday Nov. 13 @ 11 am. Yikes.

Ontario – at least the hot bits of it – may lock down again. The Toronto mayor’s been on the tube begging people to stay home. Not the message you want if you own a shoe store, like the one I bought some awesome winter boots in yesterday. “We’re just hanging on,” Jacob said. “Thanks be, that I do not own this store.”

Well, so much for the miserable pathogen news. Now let’s look ahead.

Will the vaccine change everything?

Probably, but this will be a phased recovery. First, equities squirt ahead. The stock market’s a forward-looking beast, so investors are now firmly thinking of 2021 and the way global growth will resume, bringing with it increased corporate earnings and the resuscitation of air travel, manufacturing and commodity prices.

The bond market is also rustling to life, because with a Covid vax and GDP expansion comes inflation, especially after governments have spent $12 trillion fighting the virus. Bond traders price in this kind of news more than a year in advance, which is what’s happening now. Since the Pfizer announcement and the Biden victory, yields have been popping. As mortgage blogger Rob McLister warns, “By the time we know the economy is back to pre-pandemic levels, fixed rates will have already shot up.”

This sentiment is being echoed within the industry. “The only thing that will send mortgage rates tumbling further,” says mortgage company founder Dan Eisner, “will be an absolute failure of the final phase of FDA approval of this vaccine.” So while many people (especially on this pathetic blog) believe society cannot possibly withstand a rate increase, prepare. If the economy gets better, rates will swell.

Here’s the advice: (a) if you have a variable-rate mortgage, it’s time to lock in. After all, a five-year fixed is available these days for between 1.5% and 2%, depending on how much TNL@TB likes you. And (b) if you’ve been thinking about buying real estate, get approved for a loan now. Says BC mortgage broker Reza Sabour: “If you’re sitting on the fence and you haven’t really pulled that trigger or called a mortgage broker yet, I would highly encourage people to do that, if they are in the market to buy and especially if they’re in the market to buy very quickly.”

But wait. Is this really the time to be buying?

On one hand, we know the economy will get better when the bug is crushed, or at least fumigated. Stores will open. The planes will fly. The highways will be clogged again. People will go back to work. Incomes restored. This confidence will lead more people to think about purchasing real estate and getting on with their lives. That would suggest pulling the trigger now.

On the other hand, sustained economic recovery has the potential to double mortgage rates. That wouldn’t take a lot – bringing us back to 3%+ home loans. This will happen regardless of what the central banks do, since loan costs are more dictated by the bond market than the CBs. As history has proven, the single greatest determinant of real estate value is the cost of money. That’s why we currently have a housing boom in the very pit of a global pandemic when people are terrified of a sneeze.

The rate-price correlation is even more pronounced when (as now) a boring suburban house miles from the downtown core commands a price of more than $1 million – up a fifth in a year. Household incomes have not leapt to justify this increase. It’s all about financing. And price hikes bring FOMO. This is a vicious cycle, wherein low rates lead to historic debt.

And, now, it’s ending.

The death of the pandemic is still a ways off. But when it comes – and it will – expect change. For the better (savers). For the worse (borrowers).

Now, put on your mask, lather up with sanitizer, slip on the nitriles and the face shield and go spend some money. Jacob needs ya.