Toilet Paper

Do you remember back in March of 2020? You may, or you may have tried to block that time period from your memory. While March of 2023 and the months that followed were a general haze for a lot of folks, the one thing we all remember, and the one thing we will tell our kids, our grandkids, and hopefully our great grandkids is about what happened to toilet paper during March of 2020.

We all remember the toilet paper chaos that enveloped the next few months. It is as if overnight, demand for toilet paper skyrocketed. Of course, the toilet paper business is a pretty steady business. It’s customer base is fairly…..shall we say….regular? There is some pretty good metrics, and a lot of history that go into balancing supply and demand of the TP market. It is hard to get the toilet paper market out of a very good supply/demand balance, but somehow we did it in 2020. Was it because there was a flurry of new Taco Bells that opened? Nope. Was the National Curry festival that month? Also a hard no. So what happened?

Math is a great thing, and math can be used to explain a lot of things. Math is a wonderful tool ,and the numbers can tell many a story. The one thing that math, science, and really no proven discipline can tell is human nature. Human nature, and how the species reacts is something that can never be fully predicted. Much work has gone into developing a system whereby we can model out human behaviour on a reliable, predictable, pattern, but it remains elusive.

Back on September 17 2023, I wrote a note showing that there was about 162,000 properties listed for sale from coast to coast in Canada. For years everyone had told me that the housing crisis we were in was because of a lack of supply. I argued the supply side was really a very small portion of the problem. Well, here we sit – almost a month later, and total listings in Canada have grown from 162,000 to 203,623. For those that like numbers, that is about a 25% increase in listed properties for sale. While the number of properties currently listed are not quite a record, a 25% increase in total units for sale is quite a large jump in a little less than 30 days. We are listings outpace sales by about 1100 units A DAY across Canada. In any market, or any asset class, the velocity or speed is far more important than the number.

This is where housing and toilet paper come together. Whether it is TP or the housing market, the supply side was never the problem – it was a hoarding problem. In both cases, people were buying more than they needed at the time – but for different reasons. Housing has been hoarded by people for a long time. In the interest of full disclosure, I owned 18 rental properties that I started accumulating in 2007, and disposed of in 2021 – 2022. Maybe I was part of the problem?

How many of your clients own multiple properties, whether it be an O/O, a rental and a cottage? How many of your clients refinanced their O/O to put down a deposit on 3 pre cons? How many of your clients own a rental property portfolio? Probably a lot of client names are going through your mind now.

When people thought they wouldn’t be able to shop for TP in 2020 they stocked up and hoarded. When everyone thought housing to the moon, rocketship emoji, straight up etc. – people hoarded housing. Human nature says that we will always want more of what is popular, what we feel is profitable, or what we feel could be scarce. We buy up these things in greater quantities than we need, and it becomes a self re-inforcing negative feedback loop.

No one needed 8 large packs of TP in 2020, and no one needs 10 houses now. But human behaviour being what it is – we do it anyways. That is human psychology. We get emotional, and we do things that we would not normally do. If housing was simply a supply problem – then there would not be 203,623 units listed for sale in Canada today, as they would be all bought up.

So why is there so many houses for sale? Simple. The psychology that drove prices up, and created scarcity, is now in a slow unwind process. The exact opposite will happen. I am already seeing a lot of articles, pundits, experts and the like telling you why renting is better than owning. The next generation is already starting to say they are fed up with fixing things, cutting grass, shoveling snow, and paying property taxes.

Since 2010 or so, housing was a national treasure, it was considered and asset, and it drove a lot of people’s identity. What happens when the exact opposite is the new reality is anyone’s guess. It is quite possible people will start to view a house as a liability, and attempt to rent forever. Not saying it becomes the norm, but now that the shine has worn off, people will look to make more rational decisions, and not be nearly as emotional when buying a house.

Good brokers will be able to deliver the facts, work the numbers, and really help their clients succeed in this new normal. Bad brokers will deliver Door Dash and Uber Eats to those houses…….