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Supply, Demand and Debt – You Can’t Print Gold!

It has yet to be determined, if we are slowly climbing out of, or still descending further into economic misfortune. Covid19 measures to slow down exponential viral growth in the now pronounced second wave are here, and B.C. extended its state of emergency. Many have returned to work, but many others have no work to return to. The generous government emergency stimulus has ended, transitioning those still not working to Employment Insurance, if they qualify. Looming insolvencies coupled with unmanageable debt could now catch up with many homeowners and business owners and directly affect any long fought attempts to extend our economic holding pattern. 

August 2020 saw record real estate sales locally and across the country in what can only be described as a “Land Rush”. In BC we saw a 5% market increase in June, a 17% year over year increase in July, and August rang out with an incredible 42.8% increase from August 2019. All this market movement continues to create ripple sales into the northern part of the province. We can attribute this years “Land Rush” to spring lockdown market delays, the huge transition of lifestyle changes, lower interest rates, lower CMHC B-20 Stress Tests levels, and low housing inventory.

Inventory is the supply of saleable properties available on the market, and BC has had very low inventory numbers in many of its regions for several years. When you have a low inventory count, buyers are then forced to choose from what is available and when you get hundreds of buyers all looking to buy the same properties in the same areas you get a boom cycle This cycle of low supply and great demand created the fast paced, price climbing market we saw in August.

There was unprecedented demand for property in the interior and northern part of the province over the past two months. The competition is getting tough in several regions including 100 Mile House, Williams Lake, Prince George, Fort St. John, Smithers, Terrace, Kitimat, Prince Rupert, Fort Nelson, Mackenzie and Quesnel all saw incredible sales figures and record prices. Great demand and small supply continues to create multiple offers on medium to lower priced housing. The British Columbia Real Estate Association reported total sales dollar volume reached $7.8 billion dollars, a 61% increase over August 2019 numbers. Wow! The average B.C. MLS price gained 12.7 %, reaching a lofty $771,309, and the Chilliwack region reported a 14.1% percent median price increase to $586,976.

We have yet to see the market decline of almost 18% predicted by the CMHC. If sales volumes fall between 19% and 29% as they predict, our housing starts and construction will also drop off taking with it our major engine of economic growth. Many market analysts and economists are predicting that this summers record setting housing market is a huge bubble about to break. But, not everyone is convinced that this will actually happen. It would be really nice to believe that this summers real estate boom will help to propel us out of our economic peril, and it will be telling to see how many jobless workers are homeowners headed into insolvency. If the insolvency numbers remain below a certain threshold, the residential market would dip, but remain anchored.

The demand is so great for land and the security of property ownership, that residential markets may not be as affected as predicted. Owning equity and liquidity in a hard asset like land has been a way to prosperity for decades. The real danger of a large influx of foreclosures lies in the difficulty for lenders to continue to grant mortgages. At a time when homeowners need to leverage everything they can to sell and then buy again, a stagnation in housing liquidity would further compound the economy building housing market. 

The Canada Emergency Rent Assistance Program (CECRA) extended coverage again for September to small businesses to apply for a 75% reduction in rent which in turn allows commercial landlords to qualify for forgivable federal loans. The uncertainty of this emergency funding has again delayed the inevitable consequences of evictions due to closures and revenue losses. Small business owners are still trying to adapt to remain compliant and open to the public. Businesses that can no longer operate are trying to rework their business models and pursue other needed services and “New Norm” Opportunities. It is into Octobers unknown that will decide the fate of so many. Commercial and residential landlords are such a vital part of our economic fabric, and tough decisions derived from tough times may deliver a crippling blow to an entire market segment unless we can find a way to beat Covid19.

We have been cautioned about our growing household debt levels that were very high even before the 2020 shutdown began. Not heeding any debt ceiling themselves, the Federal Government continues to print money and offset the economic collapse brought on by industry killing policy, and the pandemic shut down. This influx of printed capital helped to keep the economy from grinding to a complete stop, during the initial pandemic shutdown, but it is a short term solution with dangerous consequences. This inflation building fix, added to an existing national debt load, severe drop in our GDP likens the country to a half sunk ship navigating very stormy seas. 

We know the first wallet hitting consequence will be another federal carbon tax, which will make everything we consume and use more expensive. It could be rising government debt that is the catalyst that wipes out the entire economy and cancels out any future prosperity prospects for all generations of tax payers and retirees. Canada is only one of many countries to be printing money and handing it out as emergency capital to stave off economic collapse during the Covid crisis.

The world anxiously awaits the unknown future of the Untied States, its coming election and the faltering state of the US Dollar. Discussions center around the prediction that the USD’s loss of world reserve standard status could cause global hardship. Financial analysts are discussing how the world is not ready for, or trusting enough in crypto-currency as a standard solution, as it opens up a regulatory nightmare. A solution that is being discussed is going back to the “Gold Standard” that was in place before 1971. It was the gold backed dollar that built North America into prosperous capitalist nations during the 50’s and 60’s. Returning to a Gold Standard would be a reset of epic proportions for the US, but as money movement in Europe, China and Russia show a large increase in both gold and foreign reserves. The Euro, the Yaun and the Russian Ruble are all contenders to replace the US Dollar unless it can be reset to its gold backed security state. 

With so many unpredictable outcomes, we have to take stock of what we do know at this time. The residential real estate market is booming, demand is great and it desperately needs more inventory. A looming insolvency crisis is coming in both the residential and commercial markets and will be bringing lender owned inventory into the supply. Record residential property prices will fall with additional insolvency inventory in the residential market, but commercial real estate is in line to be the hardest hit market segment. Our household and national debt are at all time highs and are a compounding catalyst of this economic and global health crisis. The USD is in danger of losing its global reserve status, and global wealth is steering us toward hard asset currencies like gold and silver. Hard assets include landholdings, owning land will always bring with it security and opportunity to rise above whatever our unknown future holds.

Linda & Freddy Marks, Sutton Showplace Realty

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