| Greetings Friends, In true Ontario fashion, yesterday we enjoy a sunny spring day (actually saw folks in tee’s and shorts!) and today we are battling grey skies and wet flurries. Equally as undecided, Ontario’s real estate is trying to pick a direction too. However, we will get into that below. At Ontario Assets, Katherine and I had a busy March, working with buyers, sellers and tenants to navigate this strange market and find the needles in a number of hay-stacks. I’ll outline the signals we are using for 2022 to help our partners and clients exceed expectations in a moment, but instead of a silly photo, this month we wanted to celebrate our clients! A few days ago we found out that our little team won our brokerage’s GOLD AWARD for 2021. We were only able to reach this milestone by helping our clients, their friends + families reach their own goals. Congratulations to you all for taking action! Now on to the Meat of the Matter: Our monthly highlights of the market and random opinions! |
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| “Even when the experts all agree, they very well may be mistaken.” ― Bertrand Russell |
| Take-aways While most Canadians dread the looming increase in carbon tax today on April 1, sending oil and energy prices ever higher, members of Parliament will celebrate their third pay increase during the pandemic. Since our last letter, the province of Ontario announced a number of changes to the taxation on foreign buyers and issued a “warning” to “speculators”, but they’ve issued no concrete plans to remove the red-tape and bureaucracy to address the SUPPLY SHORTAGES in our housing markets. We are already massively imbalanced in this regard, and recent federal increases to immigration targets, including the largest influx of Hong Kongese/Chinese immigrants in 20yrs, aren’t even mentioned in the Province’s “plans”. The needed increase in supply should be of critical importance when voting this summer, or to anyone associated with housing or if you ever plan to buy one in the future. The only real way to make housing affordable to create more housing. However, more importantly than our elected time-wasters, I SENSE CANADA IS CURRENTLY IN A RECESSION. Without boring you with all of the data I’m seeing in our markets, the simple red-flags are that the bond yields in Canada and the USA have inverted 5 times this week. This is not common, and it’s not good! When the curve inverts there is a better than 68% chance of a recession within the year, and a 98% chance of a recession within the next 24 months. The smart money says that we are already in a recession, but as usual the BoC (and Government) are behind the curve…they will likely announce the recession sometime in the warmer months or right before health restrictions this fall. When this acknowledgement occurs, they will likely need to reverse course on their tightening schedule, and cease interest rate increases, or risk the Great Depression 2.0. So much for battling inflation… Why would I say that they are behind or wrong? Well, in 2020 BoC / CMHC’s forward guidance was that there would be an 18%-30% drop in Real estate values in 2020/2021. Prices as we all know, actually went up approximately 47%; how much wealth was missed by those folks who listened to these warnings? Then there was of course the multiple years (2020-2022) of press conferences, where the well paid experts assured us that there was no-inflation in the system, but then oops there’s was some, but it’s transitory inflation…. well, ummm it’s stickier actually, and now it’s of course solely Putin’s fault. I find it funny/sad that they never mention the direct relationship between deficit spending (and Q.E.) and inflation. At best, these “experts” are WAY behind the market/data, or they are tragically incompetent. Either way, between my hypothesis of an existing recession, the 0.25% increase in March, and the fear in the media for more increase, we are already seeing palpable shifts in Real Estate. However, since the BoC officials aren’t “boots on the ground”, their excel spreadsheets likely won’t tell them to stop until they’ve already broken something. A 5yr Fixed rate mortgage has already gone from 2.5% to 4% in approximately 2 months. In real terms this is an increase of $550/month for the typical Canadian mortgagee. Variables are trailing still, around 2.2% before any discounts, adding only approximately $12 per every $100K in debt. Since most buyer’s get a 90 day rate hold, many are not yet subject to the increased rates and they’re likely the one’s creeping prices ever higher this past month; “only” 3% growth in Toronto last month, point of note, that used to be a respectable annual gain. So what are we at Ontario Assets doing for ourselves and our clients? We are shoring up our portfolios and watching with eye’s wide open: – Selling any lagging properties or portfolios; one’s with minimal cashflow, or one’s that have exploded in value over the last 3 years, to move funds into cash alternatives or into markets poised for growth. – Since last fall, we’ve been working with tenants who are ending their tenancy, undertaking strategic renovations and initiating refinances. – We are as always SPECIFICALLY focused on Cashflow, while refinancing out investor capital where appropriate, being very mindful of strategy and LTV. – As the smell of fear permeates the news/markets, we are also keenly watching for over-looked opportunities and quirky properties that might get missed by the masses. Our buyers are eager and ready to take advantage of any of the pauses or fear that cause others to wait. Long story short, we continue to Buy Hard Assets so we can Create Time + Money Freedom. What a wildly weird world. Randall Reashore |