Roughing it

For two decades Rob has lived in the small town in the hinterland and reported for the local paper, the Sun-Times. “We’re seeing weird things,” he told me on Monday. “We were a sleepy town of twenty thousand forever, and suddenly everyone wants to live here.”

Well, 223 more people actually. In February alone. Enough to set a new all-time sales record for houses in Owen Sound. But it’s not just all the moving vans having an impact on this place about 200 km north of the Big Smoke. It’s the pile of urban cash causing the weirdness. And not in a good way.

According to the Realtors Association of Grey Bruce Owen Sound the average home price last month was 54.3% higher than a year ago. For the first 60 days of 2021, the jump equaled 45.5%. It means a place that could have been yours for about $400,000 last winter now trades for $613,000. And things are getting worse. Active listings are down 55% from this time last year, pushing the months of inventory to 1.3 – compared with the historic average of 7.2.

“Any time we do a story on real estate or publish the monthly numbers,” says Rob, “it’s all anyone can talk about. How can a young family buy a house here anymore, or anybody who’s local?”

Indeed. CMHC reports the average income is just a tad under $75,000, which puts the average house – at 8 times earnings – out of reach. Down in Toronto – a 2.5 hour commute (with light traffic) the average income is $109,000 and the average property $1 million – so real estate misery now knows no boundary.

But here’s the key point: in Toronto there are vast numbers of rentals and not everybody expects to live in, and own, a detached place. In Owen Sound (like most small towns) being a tenant is, well, strange. And owned homes are the norm. Properties working people can afford. At least until now.

Rob wondered why I thought this had happened and what comes next.

No surprise, since this is a pandemic phemon that’s hit every market in Canada, and across the continent. Nesting. Urban flight. Cheap mortgages. WFH. And a misplaced human conclusion that what the last 12 months wrought will forge the future. But that won’t happen. In Owen Sound, as everywhere else, herd immunity this autumn will bring workplaces back to life. Then we’ll see cities rising, higher mortgage rates, resocialization, less FOMO and the patina of desire stripped from the hick life. Way fewer people will think about heading north, bringing less competition for real estate and an end to 50%-per-year price gains.

The last people to offload their couches into $600,000 houses that cost way less a few years back may wonder what the hell they just did. The locals who sold will have reaped an historic windfall. And, sadly, the housing market in another community will have been forever screwed.

It’s a story playing out from Squamish to Airdrie to Windsor to the South Shore of NS. Covid cash, pandemic restrictions, human nature, emergency central bank rates, voracious realtors and omnivorous lenders have conspired to put the cost of shelter beyond reach for many. And while we’ve come to expect that in the big cities, it’s a culture shock in the hills and fields beyond.

Will prices plunge as the pathogen fades?

Nope. There’ll be no retracing back to 2019 levels. History shows that after a bubble occurs prices can retreat 15% or so, but four-fifths of the inflation remains. Canadians just end up shoveling more of their net worth into a single asset, while taking on ever-larger dollops of debt. Pandemic newcomers who bought into a storm of interest may be completely shocked at how hard it is to get out again, or how quickly a market can grow cold and illiquid.

But it’s not all bad for the urban refugees. There’s always Wing Night at the Legion.

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On the weekend this pathetic and prescient blog predicted we’d know this week about the date of the next federal budget. And now we do. It won’t be in March. So that means late April, according to a Deep Throat media source.

As a result it’ll be more than two years since the last budget, making Canada unique. Not only has our government spent more than any other in the world during the pandemic, but we’re the only major industrialized nation not to be given an accounting of public finances during the crisis. We can now only guess at the deficit. $400 billion? More? How much more? Whassit mean? What new levies?

The last update (not a budget) came in November, as the second wave was hitting. Since then (100 days) Toronto has been in lockdown, schools largely closed, airlines have chopped domestic flights, small businesses failed and government spending has ratcheted higher as tax revenues fall, taking the pubic debt above a trillion. Back then the feds said they planned to shovel out another $100 billion in recovery money which would be detailed in the 2021 budget. So it’s March of 2021, and no budget yet.

By the way, your taxes are still expected by April 30th. Sheesh.