Category: Accounting tips

Would you list your house during a pandemic – when people leap off sidewalks from each other and hid behind masks?

Nah. Most folks are taking a pass. That’s why the number of active listings in all markets has dropped and, in some places, plunged. In the GTA, for example, new offerings in April crashed 64%. Active listings of over 18,000 this time last year have fallen to ten thousand now, down 41%. Lots of those are germy, yucky, have-to-ride-an-elevator condos. The number of detached homes available in traditional demand areas is puny. So anyone brave enough to list is likely to score multiple offers, since it only takes a few dozen people in a city of six million to push values.

This is why sales have tanked in the midst of our worst-ever economic contraction, yet average prices have held steady. The question is, where next? Are buyers who pay pre-virus prices (or more) smart? Or is this a residential death wish?

First, it’s probably a great time to sell your house. Once restrictions start to lift and people feel more confident they’re not going to die after buying veggies at Loblaws, listings will erupt. Yes, many showings will still be via FaceTime or virtual tours, but that’s the new normal.

How do we square this with the dire words (reported here yesterday) coming from CMHC boss Evan Siddall?

Easy. Siddall has his eye on the larger economy, average household finances, employment prospects, debt and a growing aversion to risk on the part of lenders. None of that is good for real estate. So while in some urban hoods demand for decent places on good streets will flourish, the overall picture is dark. Bloomberg’s latest survey of economists, for example, is downright scary – a contraction of 41% taking place in Canada. The last time this happened? Yeah, never.

Inflation is negative. Falling gas prices helped drag it down, but weak demand is the real culprit. Millions of people are collecting CERB, at home in their skivvies playing with their kids They’re not driving, shopping, eating out, getting their hair done or buying sneakers.

Look at interest rates, which are a proxy for economic activity, growth and desire for capital. Mortgages have just fallen below two per cent, with three-year fixed at 1.99% and variables at 1.95% from a variety of lenders. But this is not 2016, and buck-ninety-nine home loan prices won’t inflame a buying wave, not with 14% unemployment and a million families unable to make mortgage payments.

Also, check out small businesses in your neck of the woods. Most are still closed. Many are worried. The CFIB says 55% of the self-employed believe they won’t be able to make June rent, despite the government’s loan and lease-relief schemes. Ottawa is being asked to dump even more free money into this sector. The airlines are a disaster. Most hotels are still shut. Restaurants have no idea how they can survive in an age of social distancing.

RBC says it agrees with Evan Siddall and minimum down payments for houses will have to rise above 5%. “we think there is a reasonable chance that higher minimum down payments may happen, but if it does, the magnitude and timing are unclear, especially since any change might further weaken the economy or at the very least is likely to prolong a recovery in housing market activity…”Capital Economics said Thursday that falling rents – the result of less immigration and job devastation – pose a real threat to real estate values as investors cash out.

Meanwhile the hardest-hit demographic in this Covid world is the young – people sub-30. Unemployment in this cohort is now north of 20%, and traditionally first-time buyers have accounted for about half of all the real estate sales in the nation. Even without a hike in the minimum down payment amount, it’s going to take a while – years – before we see the kids qualifying for mortgages.

These are some of the reasons CMHC says real estate values may drop up to 18% in coming months, while other forecasters warn of a 30% plop. Relatively few Canadians have been killed by this wave of the virus, but we sure offed the economy. Main Street will take a lot longer than Bay Street to get back on its feet, and until then real estate stays confusing. Many people will look at demand overwhelming supply in certain pockets, and be completely fooled.

This is a seller’s market. Briefly. Don’t blow it.

Source

Canada’s debt mess got real this week. Changes loom, including the doubling of required down payments for houses, tighter credit, more defaults, a brewing crisis in the autumn and falling real estate values.

The guy in charge of the nation’s housing agency had some shocking things to say when he addressed the House of Commons finance committee (of which I used to be a troublesome member). Evan Siddall is an enemy of the real estate cartel now. But he’s a burgeoning hero of the economy. Finally, a federal official with the stones to admit our house-lusty society has brought the country to a cliff. The virus pushed us hard along a predictable journey. It’s taken just a few weeks of pandemic to prove what this blog spewed for years. Property has pooched us.

With the economy collapsing by up to 40% in this current quarter and unemployment racing to 20%, Siddall warns it’s time politicians stop stoking real estate and face reality. “Homeownership is like blood pressure,” he told them. “You can have too much of it.”

And we do. Floating precariously upon an ocean of debt. Now for the consequences. Here are some of Siddall’s bombs

• The number of people deferring mortgages for six months, already at an unprecedented level, is expected to grow steadily. 20% of everybody by September. Not good. “Just as governments are taking on more debt to finance the COVID-19 response, mortgage deferrals are adding to already historic levels of household indebtedness.”
• Debt is washing over Canada. Before the virus household debt equaled 99% of the economy. That will explode to 130% by the autumn. “These ratios are well in excess of the 80 per cent threshold above which the Bank for International Settlements has shown that national debt intensifies the drag on GDP growth.
• Debt in relation to income is already a disaster at 176%. Into next year that will become 200%.
• Unemployed, indebted people don’t buy houses. CMHC says prices will tumble by up to 18% with a year. That’s a quarter million dollars off the average Vancouver detached house. “The resulting combination of higher mortgage debt, declining house prices and increased unemployment is cause for concern for Canada’s longer-term financial stability.”
• There’s a ‘deferral cliff’ coming in September, “when some unemployed people will need to start paying their mortgages again. As much as one fifth of all mortgages could be in arrears if our economy has not recovered sufficiently.”
• The virus, the economy, debt, deferrals and falling prices are toxic for new buyers. “We feel we need to avoid exposing young people (and through CMHC, Canadian taxpayers) to the amplified losses that result from falling house prices. Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent.

Well, there you go. It doesn’t get much plainer. Apparently CMHC will be recommending to the Trudeau government the 5% down payment minimum be doubled. The agency wants to limit demand for housing, not encourage it. House prices and debt limits are “increasingly out of reach for young people,” and the virus has pushed us into a crisis of clarity.

In practical terms what does this mean?

Jacking the minimum to 10% (with a 5% mortgage stress test in place) would throw ice water on a market already hobbled by Covid. Meanwhile if 20% of all the mortgaged households in the land must defer monthly payments, how can they all resume in September when the jobless rate lingers over 15%? When the economy is a third smaller? When deferral means monthly payments are now greater? Impossible. So many will go into arrears.

Lots of families will have to sell. More listings. Fewer qualified buyers. This is why Evan Siddall says prices will fall. How could it be otherwise? The agency believes things will eventually improve – but that’s two years out. If a million households can’t last six weeks, how can they hang on until 2022?

“Trees don’t grow to the sky,” Siddall says. “The musical chairs game is going to come to an end. Young people, who are very highly leveraged will suffer.”

To my knowledge, this blog has never said this before. But here goes, without pleasure.

I told you so.

Source

Remember when we all knew Americans were hedonistic, debt-lapping, financially crippled, amusing profligates? Well, maybe not. Or could be we’re just way worse.

First, consider borrowing. Households in both countries have been intemperate. In fact, when it comes to snorfling loans, Canadians have no equal. US families sharply reduced their appetite for mortgages after the housing market blew up in the mid-2000s, resulting in the credit crisis. But not us. We’ve continued to borrow like there’s no tomorrow (and there may not be), so that total household debt of $2.2 trillion now eclipses the size of the entire domestic economy.

Look at this. Tsk, tsk.

Of course most of this borrowing has gone into mortgages, helping inflate real estate values while deflating savings and investments. Apparently the Bank of Canada and all those one-paycheque-from-disaster surveys were correct. When the virus hit, personal finances disintegrated. The central bank’s latest report finds about a quarter of all families with mortgages were able to make two monthly payments, or less, before exhausting their resources.

Did they buy too much house and take on excess debt? Were lenders remiss and irresponsible in handing out all those loans? Did politicians screw up with all their pro-house-borrowing policies like RRSP loans, newbie tax credits and the shared-equity mortgage? Have we lost the culture of saving and self-reliance? Are these rhetorical questions?

Anyway, here we are. Virus world. Millions temporarily jobless. Mortgages going unpaid. It’s interesting that (at last count) 16% of Canadian owners had asked for payment deferrals, while in the US it’s half the number – 7.9%. Here over 720,000 are deferring and in the States (ten times the pop) the number is four million.

Last week some posters didn’t like the message that asking for a deferral might have consequences. But it’s true. And why not? If you miss payments, it’s noticed. The assumption is you were unable to make them. That doesn’t say anything good about your overall financial condition. If you were a lender, well, you’d make a note of that since staying in business means containing risk and shedding customers who can’t meet their obligations.

As reported. CHMC has been rejecting apps from people looking for refinancing after asking for a deferral. It just makes sense that any household not making payments during Covid will have more hoops to clear post-pandemic when a mortgage comes up for renewal. Is your job secure? What kind of job? How long? What employer? What salary? What’s your net worth? And if you’re self-employed, expect a full body cavity search.

Will a deferral affect your credit score?

Maybe. Deferred payments could end up marked as late or missed on your Equifax tab, which is based on the automated credit reporting system. One black mark like that is enough for a mortgage to be declined, so make sure you check. As a back-up, get a letter from your lender stating deferring payments were approved.

By the way, US virus law prevents lenders from reporting deferred payments to credit bureaus, but only temporarily. “Regardless, the resulting void in your credit history could be a signal to future lenders that you were having trouble,” Americans are being told. “That’s because creditors generally report “on-time” payments as they’re made for credit cards, auto loans, mortgages and so on. Even though your credit scores may not be negatively affected, those missing payments will very likely affect your ability to get a new mortgage in the future.”

So, use common sense. If you don’t need to defer, don’t. The consequences of doing so are unclear. But the statement this sends is not: you can’t pay. Is that really what you want the guys giving you money to think?

Finally remember that deferring a mortgage payment is not the same as having it waived. You still owe the money. It will end up increasing your debt and hiking monthly payment amounts, as well as (maybe) affecting a renewal.

Perhaps this is also a wake-up call. You borrowed too much. Or you saved too little. By the way, if this peckerish virus comes back for a second time, robbing jobs, don’t expect another deferral.

Having said all this, if you can’t make the monthly because you have no money, so be it. The shoe’s on the other foot. Now the bank has a problem.

About the picture: ” I saw this down the road from me in Dunbar on Westside Vancouver,” says our blog dog. “There is a hole where the leg should come out of the hull so should sink pretty fast. As per the economy, no matter much you spend, it’ll still be crap.”

Source

Thirty-seven months ago Dorothy, Bandit and I piled into the wagon at daybreak and hit the Parkway. Gridlock. Ninety minutes later we broke through the sticky eastern membrane of the GTA, heading east. To Lunenburg. Where we’d had a seasonal home for eight years.

We never went back. At least, Bandit didn’t. It took a few trips for me to sell the downtown condo, the Belfountain General Store and a country property down the road. I also told my corporate colleagues this was it. Adios. Keep my office in the Bay Street tower, but don’t expect to see much of my imposing silhouette.

In the quaint town on the South Shore of Nova Scotia an hour from Halifax, overlooking the working harbour, we stayed. Bought a nicer house. Bought a sweet little stone former bank building. Established a new branch of my business. Hired employees, including a Wall Streeter and Bay Streeter looking for better. Installed the fat data pipe from the Big Smoke.

Monitoring the financial markets in my Lunenburg office.

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“You know,” Dorothy said, looking out her kitchen window at the Polar Prince, the Maude Adams and the lobster boats tied to Zwicker Wharf, “we’re exactly where we should be. I’m never going back.”

Recently several people on this pathetic blog have asked why we made this choice. I shall try to answer, without justifying. After all, it’s an acquired taste. Unless you like lobster, blue tartan, kitchen parties and driving really, really slowly.

Where is this place? About twenty hours by car east of Toronto. Ninety minutes from the Stanfield airport. On the Atlantic Ocean, south of Mahone Bay and Peggy’s Cove. The weather is (in my experience) way better than Toronto. The guy who shovels my driveway showed up three times this winter. Mostly it rains instead of snows. This strip of NS is the Victoria of the Maritimes, it seems.

Taxes are as brutal as Ontario, Quebec or BC. HST is 15%. It’s as hard finding a family doctor as it is in most places, but little Lunenburg has a large, fully-equipped hospital with an ER – notable for a place of two thousand souls. Also lots of dentists, two medical clinics and a big LTC facility (with no virus).

It’s a tourist economy, so 2020 will be rough. Lots of restaurants and a dozen art galleries on Lincoln Street. The Bluenose lives here – visible from our windows. Scallop fishery is big business. So’s the distillery and craft beer brewing. Loads of B&Bs. There’s a thriving classical music academy and a school for the arts. Plus a high-tech gaming company successfully bending young minds in several countries. Artists-per-square-mile is huge. There’s a restored opera hall. Endless festivals (except this year). One Timmies. No big-box stores. The closest Home Depot is 90 clicks away in suburban Halifax. That city has everything you’d expect from a place with 600,000 people. Plus a navy. That’s cool.

But why did we land here?

So I’m a 1%er, and blessed. Dorothy and I could live pretty much anywhere, and the choice a decade ago was Lunenburg or Van. The cost of living aside, NS won because of people, beauty and culture.

It’s a first-name place. The town officials , the cops, the bylaw officer, the lobster guys, tradespeople, shopkeepers, TNL@TB – all are familiar and equal. You can walk everywhere if you live in the Old Town. Grocery store, pharmacy, lawyer, town hall, insurance office, clinic, stores, bars, parks and the rowdy Legion. Greenie, social-justice-warrior lefty artisans are nicely balanced by redneckies in tats and black pickups with modified mufflers and hunting dogs in the back. An astonishing number of folks, when you get to know them, admit coming here from away. I think the urban refugees may be taking over.

East coast culture is a big draw. The art is compelling, the music infectious. In my bank building I donate space to the local documentary film festival office, the Nova Scotia Sea School which teaches sailing and life skills to kids, plus there’s a sculptor in the basement who works in wood. When the financial world is tedious, I go down there, hang out and inhale the cedar chips.

A two million dollar Toronto house costs about five large here. Outside of town perfectly good places go for three. Rents are dirt cheap. Airbnb’s been a scourge, but that will end. Lunenburg is a Unesco heritage site, with the Old Town looking essentially as it did 150 years ago. The architecture is eye candy. The local heritage officer, Arthur, quickly hammers anyone who changes a window, a fence or a façade without a ‘certificate of appropriateness’.

It’s a small place. That brings an enveloping sense of community. It also brings lack of privacy, scrutiny and judgment. You can’t give the finger to someone who cuts you off because you’ll see them three times this week in the post office, the liquor store and the Foodland.

Now we have the virus. Everywhere in the world. In NS today there are 102 active cases in a population of a million, with four people in ICU. Most of the 55 deaths came, tragically, in one retirement home in Dartmouth. A few people in Lunenburg wear masks. There was a security guard in the grocery store for a while, but he’s gone. The golf course across the harbour is open again. Nobody locally has Covid. If they did the community Facebook page would light up. But so far it’s all about small engine repair, remote Zumba classes, lost dogs and found chickens. Or why someone heard a siren. Oh, and traffic, when there is some.

You’d probably hate it here. So best stay put.

Source

Not only could you fly Air Canada anywhere, eat out, get a haircut, get your teeth fixed and go to the office in February, but you could also get a mortgage fast, cheap and easy.

No more. We’re risk-on now. Lenders are circling the wagons. And left on the outside could be some of those 750,000 people who thought they’d be smart to defer mortgage payments for six months.

Maybe not. That might have been a fat mistake.

First, understand the profound changes in the mortgage business. Lenders are increasing their loan-loss provisions, refusing to allow HELOC money to be used for rental property down payments, turning down loans for condos where cash flow might be negative and giving end-use buyers a harder time than most ever imagined.

Refinancing or renewing your mortgage might no longer be a slam dunk. Lenders are looking carefully at income, long-term job stability and rejecting anyone taking CERB money. If you had enough income to score a mortgage a few months ago, you might be rejected if the lender has doubts about your position, company or sector. Look at what one of the Big Banks is saying about self-employed folks:

For any application using self-employed income, in addition to standard income documents, the broker must provide us with a description of the business, when established, number of employees, and its current status (e.g., operating, shut down). Note: we may request additional income documents or conduct additional due diligence at our discretion to verify current income/employment status. Additional due diligence will be required to assess the viability of the business post COVID-19. To assist in the assessment, please consider asking your client for their most recent financial reporting, i.e., interim tax reporting.

Not self-employed? There are still problems. Appraisals are coming in lower than three months ago, so approved loans are smaller. Meanwhile real estate values have been falling (down 12% for detached properties in Toronto last month), which could make it harder for refinancing or renewing in the months ahead, especially as many lenders drop their loan-to-value ratios from the previous high of 80%.

Like I said – it’s all about risk. We’re awash in it with almost eight million people on government benefits, and some entire industries crumbling. No wonder all the banks, credit unions and subprime lenders are drawing in their horns, becoming more cautious, conservative and parsimonious.

And then – all those people who have stopped paying their mortgages. What are they thinking?

They must believe there are no consequences. In fact many who can pay (like the blog dog quoted here a few days ago) can cough up the monthly mortgage amount, but have chosen to defer instead. They want to preserve cash. Or use it for other purposes, like investing or renovating. Or they just want to live free for six months. As stated, every dollar in missed payments will be added to their outstanding debt, plus they’ll be hit interest on the arrears. But that could just be the start of their issues with lenders.

The act of deferral, after all, signals to the bank that you cannot pay. You’re breaking a contract, reneging on an obligation and citing extraordinary circumstances (the virus) for your action. Fine. The lenders are being lenient, encouraged by the government. But your decision is a consequential one, and it’s noted. Red-flagged. In your file.

“If you really don’t need it,” says Montreal mortgage broker Peter Quinn, “don’t ask for it. I am sure it will affect your credibility.” Seems CMHC is now routinely asking brokers submitting financing applications if a client has asked for a deferral and, if so, why. “So, an ‘opportunistic’ client or a troubled client will both be treated the same …” Quinn wrote in a Facebook post this weekend, “so when I tell you to avoid deferring payments, believe me, my experience of the past 30 years is solid enough to know what I’m talking about.”

Quinn cites a client who owns six rental properties and asked for a deferral when several tenants couldn’t pay their monthlies, thanks to the virus. Despite good income, credit and equity, the loan was refused by CMHC – because the guy had asked for the deferral. “I’m telling you to avoid this solution at all costs. For those who are currently receiving such leave from your lenders, if you intend to refinance shortly, I recommend that you return to a normal situation as you could experience the same problems.”

If you deferred, did you have a valid financial reason? Did you give an honest explanation? If not, you might have a surprise waiting when you come to renew.

On Friday this blog asked you about your personal experiences with the virus. Over six thousand people responded. And while the vast majority have not been infected (to their knowledge), fear of Covid and dying from it, is significant.

Herewith the survey results (6,073 unique responses):
(click on image for enlarged view of survey results)

Source

  By Guest .Blogger Doug Rowat

I used to work at a Rogers video store. You know, the old school rental store, complete with rows of empty VHS boxes, a video return drop-box and beaded curtain for the ‘adult’ section.

And explaining recently on a FaceTime call with some of my younger relatives that renting a movie actually required getting in your car and going for a drive resulted in the same puzzled expressions that I must have given my grandmother when she explained to me that movies used to have no sound.

Institutions change, old ways get disrupted and iconoclastic shifts occur in society and businesses all the time. Covid-19 is certainly going to create some permanent shifts of its own. The most lasting of which may be a decline in commercial office space demand.

This blog has hinted at this coming change several times over the past few weeks, including highlighting this recent update for BMO employees, an update that would have been unthinkable six months ago:

This week BeeMo shocked many when the bank said it expected up to 80% of staff to stay home, post-virus. No cubicle farm. No collaborative work spaces. No elevators to floors in the sky. No gleaming bank tower. Another nail in the downtown coffin.

According to ZipRecuiter, nearly two-thirds of Americans are now working remotely. And there’s much evidence to suggest that this could become a permanent arrangement for most. Gallup research, for instance, highlights that three in five of these US workers who have been doing their jobs from home during the pandemic would prefer to continue working remotely even after the restrictions are lifted.

Surely employers are also beginning to do the math and envisioning the money that they’ll save off-loading expensive real estate and overhead costs to employees. But even when we do return to the office, social distancing requirements will probably make most of the space useless anyway. Arup, for instance, an engineering group with projects worldwide, estimates that its central London offices will only be able to accommodate 35% (at most) of pre-lockdown staff. Paying top dollar for big, wide open spaces to accommodate employees’ need for social distancing? That can’t last. Either lower rents must be offered or, alternatively, companies won’t renew leases. Neither option sounds favourable for office property owners.

Now, one might argue that an increase in work from home (WFH) will eventually result in diminished productivity and an unhappier workforce because of the increased isolation. Only time will tell. However, a 2013 study published in the Quarterly Journal of Economics, showed that WFH employees at Ctrip, a 16,000 employee, Nasdaq-listed Chinese travel agency, were 13% more productive than a control group and reported higher job satisfaction. In fact, the results of the research ultimately prompted Ctrip to offer WFH to all its employees. This certainly dovetails with the Gallup research cited above.

However, perhaps the most straightforward evidence that there’s a dramatic shift underway in the office property sector is the behavior of the office property stocks themselves. Boston Properties, for instance, the largest publicly listed office property owner and developer in the US with almost 200 properties totaling more than 50 million square feet, has seen its share price plummet. In and of itself this isn’t unusual given the overall equity market environment; however, what should be concerning to investors is that its stock price hasn’t participated at all in the market rally of the past six or seven weeks. The market is saying that the coronavirus may actually permanently damage office property demand.

Boston Properties Inc. (Blue Line) vs S&P 500 (Red Line) – One Year

Source: Yahoo Finance

Does this mean that you should abandon REIT exposure in your portfolio? Of course not. As Canadian investors, office REITs make up only about 13% of the Canadian REIT universe. My colleague Ryan has already explained why REITs offer such compelling value and such attractive yields at the moment. REITs are an essential part of any diversified portfolio, particularly if you need income.

But I do highlight specific concerns for the office property sub-sector. When we’re finally all let out of our cages and released back into the wild, we may find ourselves going right back inside. The traditional workplace may have permanently transformed itself into our own dining rooms, basements or living rooms.

For many of us, there’s as much chance that we’ll return to our old office buildings as there is that we’ll walk through a beaded curtain to get access to adult videos.

The times they are a changin’.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

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‘No cash.’

Anti-social signs like that cropped up everywhere after the virus came to town. Just one more way of building walls between people. Masks. Jumping off the sidewalk when someone approaches. Plexiglass shields. Sheltering at home. All of this has created a new reality. Covid, 1. Humanity, 0.

Cash money isn’t exactly social glue, of course, and many doubt its continued existence. But telling people how they must pay for services or goods you sell is a losing strategy for retailers. Besides, it’s just another slice of the dare-I-eat-a-peach world that we now inhabit. Fear rules. We’ll probably live to regret this.

But is cash dangerous? Does it give those nasty invisible bugs a way to leap between humans?

The Bank of Canada says not. Folding money is harmless, we’re told, and has benefits over digital currency. No transaction fees. Private and anonymous. No trail. Always there when the lights go out, the power grid fails and the dog ate your debit card. Plus cash is universal, legal tender everywhere. Not only are retailers wrong to reject it (no right to do so) but not accepting cash disadvantages those who lack the skills or credit to have payment cards.

Health Canada says you’re being an alarmist weenie if you fear cash. Covid is spread by sneezing, spitting, drooling on or smooching others. Not by handling bills or coins, especially if you keep your hands clean. The cash-is-toxic meme is just as ill-founded as the belief you can no longer pet your neighbourhood dog, because she may have germy fur. The WHO agrees. “There is currently no evidence to confirm or disprove that COVID-19 virus can be transmitted through coins or banknotes,” it says.

Now despite this, cash is likely doomed over the long term. The virus will merely speed the process.

Since the pandemic arrived the number of contactless debt card tapped transactions has jumped. Currency e-transfer payments have soared more than 60%. And, of course, credit cards are de rigueur for all of that online shopping we’re doing. About one in 10 Canadians no longer use cash, ever. That’s almost the mirror opposite of Swedes, where 85% of people never use folding money as that country moves to a fully cashless society. But the times are changing. The Canadian Payments Association says the move from paper money to digital transactions is dramatic, as we shop with debit cards, credit cards, e-transfers and the new stuff like Google and Apple pay.

So, no doubt smartphones will eventually replace all else. Then say farewell to emergency readiness and anonymity, while hoping your grid always stays lit.

Meanwhile ‘no cash’ deserves ‘no sale.’

$     $     $

Almost 750,000 people have asked for their mortgage payments to be deferred. That’s a fifth of all indebted property owners. Astonishing. As you know, these payments are not being waived, but are added onto the debt itself meaning there’s a bigger nut to finance at the next renewal date – when rates are likely to be stiffer than today. Plus interest is accumulating on the deferred payments, further engorging the principal.

The fact people are willing to end up owing more in return for less cash flow today suggests (a) they can’t pay their loan, thanks to the virus (or own too damn much house) or (b) they don’t get it. This is not helping them financially in the long run.

But wait, says this blog dog. There are other reasons which validate not paying the home loan.

“I am one of the over 700,000 Canadians not paying at the moment.  Lately you have been bashing those deferring as not having any savings and just spending on Netflix and N95’s and completely house poor.

We have a home worth about $850k and a $265k mortgage.  $300k invested in a relatively B/D self directed portfolio and $20k in cash. No other debt. Could I pay?  Yes.  But why be in a hurry when money is so cheap?

My reasoning behind not paying is:
1. Our variable rate on the mortgage is 1.45% – why cash in my BMO stock paying me 6.24% divvies to pay down a mortgage at 1.45% (coincidentally with the same bank)
2.  We will be putting a new roof on this summer as well as sending a child off to Uni in September.  If we kept paying the mortgage, by late fall – the cash in the bank might be depleted and we might have to dip into our investments.
Cashing out some of the investments now or in the fall would force us to take a loss.  Should I really have more than $20k in cash and be opting to continue to pay BMO? Not sure you’ll reply but wanted to give you my perspective.  Am I nuts?”

Well, that’s a cogent argument. But let’s not forget a $265,000 mortgage at 1.45% has monthly payments of only a few bucks over $1,000. Cheap. And most of that is principal repayment. So six months of deferral will save you six grand, but increase the outstanding amount to more than $270,000, plus interest.

Besides, if you have a portfolio of dividend-payers, that income stream alone should be enough to make home loan payments. The overall point: with a mortgage carrying a rate that’s historically low – less than inflation – meaning a huge chunk of the monthly is debt repayment, (and we know rates will rise when the recovery comes) why not take advantage of this to trash the loan? Why not just put your kid on the Trudeau Dole? Sheesh – get with the program.

Funeral procession in Toronto, Friday, for 54-year old Covid victim.

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Remember when I said this was not a virus blog?

I lied. Everything is virus now. We are obsessed. Overwhelmed. Immersed. Inundated. Drowning in Covid-19 coverage. So it’s time this pathetic blog jumped the shark and got right into it.

Here it is. The Virus survey nobody else has had the courage (or stupidity) to publish. Results Sunday.

Source

Some notes from the Virus Diary on this Star Date 14.05.20.

For years he was a GreaterFool Deep Throat undercover correspondent from the delusional, house-lusty, moist metropolis of Vancouver. Then he escaped to Europe, but remains addicted to this pathetic site (aren’t we all?). “I’ve written you now for what seems like close to 10 years,” he admits, in this week’s epistle.

So how are things in Switzerland?

“I was in Canada until March 16, then back to Switzerland, arriving on day one of the full lockdown, lasting 20 days ago. Things started to open up . . . with the Haircut and Tattoo parlour being first. (I have now been to a restaurant each of the past 3 days – the first days of opening). All of these businesses have been open for 2.5 weeks and our infection curve reduction has not in any way changed course – every day – less and less . . . not even an inch of uptick from the opening of businesses.

“Maybe I’m not scared  because I live in a place where I don’t get any media – it’s all in a foreign language, there is little English local news, Thus all I can see are the statistics (here they are very, very positive – we have reduced the infection rate by ~97% in 6 weeks).”

DT may be feeling good about how the Swiss are dealing with Covid, but he seems deeply worried about Canada, especially in light of the poll done here some days ago showing the overwhelming bulk of readers have 0% intention of venturing out to eat, take in a concert, go to a business meeting or fly any time soon.

“I am shocked to see how scared your readers are. They are afraid to go out in any way – even those who appear to be saying, ‘just get on with this. . . ‘ If only 16% of people would go to a restaurant in the coming 2 months – that’s just totally crazy. I don’t even have one ounce of fear ad am not “scared” to get the virus – I just won’t change my life for this.

“I could easily see it being 50/50 – but 16% for restaurants? What, are you all crazy? I also would even fly tomorrow if I could. But the poll shows that people are now totally disconnected from the low level of risk that they are facing. Restaurants are doomed if only 15% would even consider going out in the next 2 months . . . . !!!! Anyhow – greetings from Zurich – and if the delusional realtors in Vancouver think the market will not move – – I think they are all lost . . . !!”

Speaking of real estate, social media is alive with realtors claiming the bottom of the market was hit in Toronto more than a week ago. Listings are growing. The number of showings is up (either virtually or with the help of masks, nitrile gloves, hand sanitizer and Lysol wipes – not the edible kind). The weather’s better. Flowers. Bugs. Audis. Tank tops. The whole thing.

And, yes, prices are off – certainly in the 416 heartland. Here’s a summary from one of the downtown hustlers.

Source: Toronto Luxury Realty Group

GTA prices fell abut 12% in April alone, and are off 9% year/year in the core, despite what the real estate board may be telling you. Condo listings are starting to swell like a horny blowfish as the Airbnbers scramble to unload, amateur landlords get stiffed on rents and sane young owners worry about elevator buttons and garbage room door handles.

So, about the new crop of moisters. The Millennials are now boring, having reached the age of quiet career-driver angst and family-forming desperation. As they get busy turning into their parents and craving minivans, the next gen is getting whacked. The Zers are between 15 and 24 and since they hold a lot of jobs in a service sector which Covid has crashed, they’re getting an early taste of joblessness.

In fact, it’s a crisis. The Z people make up 12% of the workforce in Canada but last month represented 25% of all the unemployment (two million people lost work in April). Look at this…

Source: Bloomberg

TD economists made some good points as those dog-awful jobless stats were being published. In recessions younger workers are always victimized, since the service sector is the first to be impacted. “Past recession cycles have shown that young people often bear long lasting scars on their livelihood,” Beata Caranci and James Marple said in their report.

This will likely mean lower lifetime earnings compared to the previous generation (that’s you, Mills), with a tougher time finding the right job/career and the need to accept work below their level of education. Kids entering the job world during a recession, we’re told, make on average 10% less than others. The income gap can last a decade, rendering student debt harder to pay while delaying marriage, kids and real estate.

Worse, the Zers will likely spend their entire lives paying higher taxes on incomes, savings, purchases and investments in order to finance a 2020 federal virus deficit that will reach towards $400 billion, according to a new Macquarie report. Every day the economy stays shut, the burden grows.

Let’s hope we know what we’re doing.

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The landless class can be so cruel.

Witness a few weeks ago when this blog told you about a doctor wanting to move back into his Toronto condo so he could accept a position at the downtown St. Mike’s hospital. After renting it for five years and working out of town, he planned to move his wife and two kids back into their former high-rise home.

But no dice. The tenants won’t leave. Not with a monetary payment, not with the good doc finding them new digs, nor with the cardiac surgeon footing the costs of their move. Not even at the end of the lease. And while he 100% has the right to reclaim the home, he can’t. The Landlord Tenant Board is shut by Covid. When it opens again, the backlog will be biblical. The tenants will still be there, squatting, in a year. In fact, they can just stop paying rent. The MD is powerless to move them or cause them to pay.

How did many blog dogs respond? They yapped.

“I really couldn’t care less that a doctor has to find a rental instead of moving into his investment property and displacing his tenants. Is this supposed to make me feel upset? Outraged? Is this your idea of injustice? Someone with a massive income being mildly inconvenienced? Get some perspective.”

“Landlords are greedy. They want to screw the tenants. Has the mortgage payment increased in the last 5 years. Interest rate have actually gone to 0%. There are hundreds of landlords who have owned their properties for a long time. Now it is the tenants turn to screw the landlord. Keep your rent on May 1st.”

The term ‘rentier’ has gained currency in recent years, now routinely spit at landlords. ‘Rentier capitalism’ is the phrase lefties used to describe a system in which people who own assets (like leased condos) obtain profit from them ‘without making a contribution to society’. In other words, it’s a form of Marxism. Karl would dig it.

The virus has brought a lot of this seething anti-landlord sentiment bubbling to the social surface. The keep-your-rent movement is one aspect. Commercial tenants – even large corporations – who refuse to honour their leases form another. The longer Covid sticks around, the more acute. It’s one reason governments are spending billions to send renters cash payments and foot a rent-subsidy program for businesses, large and small. In the end, every taxpayer will be on the hook for this. Something is clearly wrong.

Apparently mall owners collected only 15% of the stipend owed them on May 1st. That was down from a lowly 25% in April. June looks just as dodgy. Even biggies like Goodlife Fitness are bilking their rentier landlords.

And who’s taking the hit? Pension funds, who manage people’s defined-benefit retirement savings. The biggest enclosed shopping centres in Canada (about 50 malls) are owned by fund real estate arms Oxford Properties (Yorkdale), Cadillac Fairview (Toronto Eat0n Centre) and Ivanhoe Cambridge (Montreal Eaton Centre). Many of these are anchored by department stores, which are bleeding out now thanks to a combo of the virus and online shopping. Will they ever open again? In the US giant Neiman Marcus has filed for bankruptcy – and a big chunk of that is a CPP liability. Yeah, that CPP. Your public pension plan.

On a much smaller note, did you read about Danish Chagani and his pregnant wife?

They bought a house for their growing family, and rented the upscale condo they owned to a lawyer down the hall. But Christopher Roper decided to stop paying rent. After being stiffed for more than $16,000 in monthly payments, Danish was in desperate financial shape. He had to remortgage the condo (two loans now in place) to make up for the lost $2,700 in monthly income needed to help finance the house.

Covid means no landlord tribunal. So no eviction is possible. The lawyer lives for free. Danish must make payments on multiple loans – or he loses the properties. The glam life of rentiers. Here they are…

Chris Steepe may constitute the low-of-the-low in our society in the eyes of the landless bitterati. He’s a realtor and the owner of investment (rental) properties. He wrote an interesting piece days ago in a trade mag on what Covid is doing to those who provide rental accommodation. “The overarching conclusion, regardless of what numbers you use, is that the net profit from a rental property is much less than tenants, media and the government believe,” he says, “and it’s these same entities who collectively think residential landlords are rich and can afford to carry all the consequent losses caused by COVID-19.”

Seepe details the ownership costs for a small multi-unit building  in Ontario. For each $1 in rental income, here’s the overhead:

• 18.8 cents – property tax
• 2.2 cents – building insurance
• 3.5 cents – electricity (common area only)
• 3.4 cents – gas heating (included in rent)
• 3.4 cents – water/sewer (included in rent)
• 8.8 cents – repairs & maintenance
• 3.1 cents – property management, janitorial, placement fees
• 1.4 cents – professional fees
• 44.6 cents – operating expenses
• 39.8 cents – principal & interest (5-yr closed fixed, 25-year am, 75 per cent LTV, three per cent interest)
  = 84.4 cents total costs
• 15.6 cents – net profit before corporate taxes (cash flow
•  7.8 cents – corporate tax (50 per cent “passive” income

7.8 cents – net profit after tax BEFORE capital costs (new roof, furnace, boiler, windows, etc.)

Seepe’s conclusion is simple: you’re a fool if you get into the investment real estate (landlord) business without understanding that tenants usually fare better than owners. So if a virus emergency comes along you are, well, pooched.

“How much money is left over for a landlord to meet all their obligations in the midst of pandemic emergency measures? Say a “modest” 10 per cent of tenants don’t pay their rent. Which companies and government agencies have offered relief or forgiveness on the above costs? What will deferral of interest payments accomplish if there’s no increase in rent? How long will most or all of the landlord’s income we live on go towards the forced extended loans and accumulated interest payments? COVID-19 may be the catalyst but it wouldn’t be the culprit of a collapsing rental property industry. Many of our risks were artificially and unnecessarily created by ill-conceived, short-term, simple-minded legislation enforced by a fundamentally dis-“membered” Landlord and Tenant Board. In the rental housing industry, ignorance of the law may turn out to be the single greatest “excuse” for financial ruin.”

Without a doubt, this is no path to wealth, or assured income. Residential or commercial. It costs a ton to acquire real estate. A ton to own it. Expenses escalate. Risk abounds. Renters have clearer rights than owners. Governments have picked their side. More voters lease than landlord. And in return for providing people with accommodation they probably couldn’t afford to buy, you become a ‘rentier’. The exploiter.

And you thought this was just a virus.

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If you haven’t changed your pants in two weeks, you’re probably working from home. Isolated. So, like, what’s the point? Maybe you don’t need pants at all.

Millions of people aren’t going to the office, the shop floor, the store or visiting clients any more. They haven’t for months. And more months to come. Working remotely hasn’t happened on this scale since before the Industrial Revolution when peasants were paid for the piece-work they turned out at home, in hovels shared with rats and kids. So not much has changed (fewer rats, though).

Yesterday we weighed in on elevators, office towers, cubicles and commuting. Last week we had a poll showing most people think their productivity at home is just peachy. There are a lot of folks who believe, in a post-pandemic world, that the old model of herding wage slaves into enclosed spaces overlorded by supervisors and vice presidents is, well, medieval. When everybody is online, on tap, on call connected all the time, why do we need to share an office? Especially when it takes hours and dollars to get there?

We’ll see if this is really a change. Or just a hiatus.

In any case, let’s discuss how you, the home worker in questionable underwear, can benefit from not going to the workplace. Assuming you’re still gainfully employed it’s possible to write off a number of residential expenses that would normally be paid in after-tax dollars. This is because a portion of your house is, in effect, being used by your employer as an extension of the office. So you get a break – on your 2020 income taxes. Fight back. Germ warfare.

But be careful. This will take a bit of work.

First, the boss has to promise you’ll get a signed copy of Form T2200, which is a Declaration of Conditions of Employment, with one little box at the bottom of page 1 checked off. That line reads, “Did you require the employee to pay other expenses for which he or she did not receive any allowance or reimbursement?” Yes. Check.

Here’s the form – you can download it from the CRA site to get signed by the company and included in your tax return for this year.

The CRA normally requires people deducting expenses for an office outside the workplace to use it for at least 50% of their total work time during the year. That may not be possible in 2020 if you’re called back in a couple of months, but let’s assume the meanies at RevCan relent and change the rules (which they will).

So what can you legitimately deduct?

The list includes paper, pens, staples, computer supplies, new equipment you have to purchase, repairs to your printer, yellow stickies, Tums and anything else necessary to do your job (except alcohol). Plus you can claim the cost of your Internet connection (but not Netflix), and a portion of the running costs of the house – heat, electricity, water. But not the mortgage, property taxes, condo fees, office furniture or capital improvements to the work space unless you are self-employed. In that case you can even deduct depreciation, but not on a spouse. Keep records. Every receipt and bill.

The amount of deductible home operating costs must relate to the actual square footage of your work area – for example, 20% of the area of the residence. Be realistic. Don’t cheat. Not worth it.

Then there’s the car.  If used in the course of generating income – visiting clients, going to Staples for supplies, delivering work product – there are more deductible expenses. Gas, insurance, maintenance, license cost, usage can be claimed in part. Also the lease payment (a good argument to rent a car, instead of owning). Keep a detailed log of every trip, including date and distance. Record the odometer readings. Retain fuel slips. The CRA loves to disallow sloppy vehicle claims.

Be aware if you accept reimbursement from your employer for any of these costs they’re no longer deductible. And cheese doodles consumed while typing reports or loading Zoom are not a write-off. But buying a new laptop could result in a big deduction if you stay away from the cubicle for long enough.

A final word on taxes: that traditional April 30th deadline for filing the 2019 return was pushed out to June 1st. And you need not pay any outstanding balances until the first of September. Yay. But if you’re self-employed, everything has to be done and paid for by the middle of June.

Now, regarding those pants. Sheesh. Get some dignity.

About the picture: “That guy was walking in front of me in the No Frills supermarket this afternoon,” writes blog dog DB, from Thornhill, “and I thought that it would make a funny photo for one of your posts – about how insanely scared so many people are.”

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