Question
The COVID-19 virus has had huge impacts on the Canadian economy, as well as other economies around the world. One noticeable shift in Canada (and
The COVID-19 virus has had huge impacts on the Canadian economy, as well as other economies around the world. One noticeable shift in Canada (and the U.S.) has been people selling their condos and buying houses (because they and their families are spending more time at home). This has meant that condo prices in city centres are stagnant or falling, while house prices in the suburbs and especially in cottage country are rising strongly. I would like you to explain carefully to me the impact of these changes on two different families, and specifically the impact of the change on their overall consumption and savings decisions, as well as explaining why it happens.
a) The first family lives in a small condo in downtown Toronto, and have a mortgage covering 80% of the value of the condo. They would like to have children. What will the changes above do to their spending habits over the next few years? Explain carefully why.
b) The second family is older, and the kids have left home. They live in the suburbs, and want to keep their house for a few years. What would we normally predict the changes listed above would do to their spending behaviour over the next few years? What might change that normal behaviour? Explain carefully.
c) One thing we have seen for the aggregate economy (NOT just for our two examples) since March is a strong increase in the percentage of household income dedicated to savings. If on average everyone is saving more, WHY are they also buying more housing overall?
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