You may agree or disagree.
As with many things in life, we don’t get to set the rules of the game, but we can choose how we play the game.
As a matter of fact, Toronto is moving forward to live a normal life with Covid.
So let’s understand the new changes and the implications they may bring along.
This past Monday, March 21, was a big milestone for Toronto’s reopening.
The first thing.
Wearing masks is no longer required in schools, restaurants and bars, gyms and movie theatres.
Masks will still be required in public transit and hospitals until April 27.
The second thing.
Employees with the City of Toronto have been back to the office since Monday.
When government workers are back to in-person offices, banks are expected to follow very shortly.
Private businesses, big and small, are likely going to follow similar footsteps.
So I think we’re going to see a significant shift back to in-person work in the coming weeks.
We know that over a million jobs were lost at the beginning of the pandemic.
How many of those have been recovered so far?
Let me give you some updates on job data.
This graph shows you the unemployment rate of Canada for the past 20 years.
From Year 2000 to 2008, our unemployment rate hovered around 6 to 8%.
When the Financial Crisis hit in September 2008, the unemployment rate jumped from 6.1% to 8.7%.
Then the unemployment rate continued to drop for the next 10 years and we hit a record low of 5.4% in May 2019.
Everything was going well until the pandemic hit.
Over a million jobs were lost and the unemployment rate skyrocketed to 13.4% in May 2020.
It came down to 9.2% in September 2020 when we had our first taste of a reopening.
Then we had Covid 2nd wave, 3rd wave, 4th wave…
And the unemployment rate bounced up and down.
Things seemed to be going fine and the unemployment rate went down to 6% in December 2021.
Then of course, the Omicron came and destroyed things again.
200,000 jobs were lost in January 2022.
Good thing Omicron was not as bad as we thought and we actually saw a sharp rebound in the labour market in February.
337,000 jobs were added and the unemployment rate fell from 6.5% in January to only 5.5% in February.
That’s just 0.1% above the 20-year record low of 5.4% set in May 2019.
You see, we’re actually very very lucky.
Canada is enjoying one of the world’s top labour recoveries from Covid.
Our employment has actually increased 1.9% compared to February 2020, the month before Covid hit.
In comparison, employment in the U.S. has fallen 1.4%.
It’s great to see such a strong labour market, but there’s also a dangerous implication to that.
In some industries, for example the construction industry, there’s so much demand for labour.
Employers need to compete for available workers.
And as we all know, when there’s competition, prices go up.
So employers would have to pay higher wages to get people to work for them.
That’s great news for employees, isn’t it?
People have been complaining that wage increases are not enough to catch up with inflation.
But is it really good news? Or bad news?
When companies have to pay more for hiring workers, that means their cost is going up.
What are they going to do next?
Exactly. Charge more for their products.
They raise prices and that translates to even higher inflation.
If you’re in a hot industry where you get big raises to match with inflation, that’s great.
But if you’re in a not so hot industry and your salary is growing slower than inflation, then that’s actually a pay cut and you’re losing purchasing power.
Last Wednesday, Statistics Canada reported that our inflation rate is now at 5.7%, a new 30-year high.
Let me show you the inflation graph for the past 31 years.
The red line is Canada’s inflation rate and the blue line is the United States.
In August 1991, Canada’s inflation was at a record high of 6%.
Then for the next 30 years, inflation hovered around 1 to 3%.
Inflation went negative in 2009 when the Financial Crisis hit and we went into a recession.
The next time inflation went negative again was of course when Covid hit in 2020.
But this time trillions and trillions of dollars were printed globally and you can see that inflation skyrocketed to 5.7% in Canada and 7.9% in the United States.
Do you think that we have already hit the peak of that inflation curve?
The Bank of Canada raised its key interest rate earlier this month aimed at tamping down inflation.
But at the same time, the bank has also acknowledged that steep inflation is expanding to more products.
And now the Russia-Ukraine war is leading to a surge in commodity prices.
Just look at our gas prices and the bank doesn’t really have much control over that.
Food purchased at grocery stores got 7.4% more expensive than last year.
The central bank is in a really tough position.
If they raise interest rates too aggressively, it may kill the economy.
If they do it too slowly, inflation may go way up.
We don’t have any control over the fiscal policies, but we can choose what to do with our money.
You can choose to keep cash and pray for inflation to come down.
Or you can aim to hedge inflation by investing in stocks or real estate.
With the new reopening milestones, no more mask mandates and back to offices, it’s not hard to predict that downtown Toronto will be coming back to life again.
On top of that, our border restrictions are easing as well.
Starting from April 1, vaccinated travellers will no longer require a negative Covid test to come to Canada.
So I think we can expect to see more tourists, international students and immigrants coming to Canada very soon.
They will definitely have an impact on the downtown rental market.
In fact, we have been seeing around 10 to 15% increase in rents, it won’t take long until the rents surpass the pre-pandemic levels.
In terms of sales, I think 2022 is going to be an extremely strong year for downtown condos.
Obviously, people coming back downtown would play a role in that.
But a major factor is the price gap between a detached house and a condo.
Back in February 2020, one month before Covid hit, the average price gap between a detached house and a condo was around $763,000.
Guess what the price gap is today?
$1.25 million dollars.
The price gap has increased almost $500,000 in just 2 years.
So the gap is naturally going to shrink.
It can either be detached prices come down or condo prices go up.
With inflation at a 30-year high, construction materials and labour costs continuing to go up, what are the chances of housing prices coming down?
I would say low rise prices will stay more or less flat for the next 6 months and we’re going to see a boom in condo prices, especially downtown condos, to bring that price gap closer.
If you want to invest your cash and not let it shrink with inflation, you can schedule a call with me at the link below.
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