Happy Thursday everyone!
This week we are switching gears! We’ve spoken a lot about the market, latest statistics, buying, selling and practically everything else involved in real estate within Vancouver lately. But what we have not discussed further, yet a constant conversation today, is the various economic situations taking place nationally and internationally.
We’re not talking about Brexit or Addidas being plastic free by 2024. No, we are talking about the core 3 topics on the lips of those involved in Vancouver Real Estate - Hong Kong, Recessions and General Elections.
These 3 things alone are being discussed with varying views from one side to the other. In the space of an hour, it’s not hard to hear “The Hong Kong crisis will send prices skyrocketing again” then “The looming recession will crash the market even further, don’t buy!”.
Well unfortunately, or fortunately, until these epidemics happen, or reach a particular boiling point, we can’t accurately predict the end result. Once again, although we would like to, we do not have a crystal ball…… Yet! So it is easier to break down each situation and what is happening from a high level and assess how that could impact our real estate here in Vancouver!
Now a quick disclosure time. To all the naysayers, we are NOT economists or pretend to be, we are just reviewing from a high level and what could possibly happen. We are not predicting the future or advising in any way shape or form on economics. Alas, we are humble realtors trying to bring you the latest from our own views and opinions!
A seemingly ever growing issue right now. You may have seen this week about the local protests between both Chinese and Hong Kong supporters. Essentially a debate took place on implementing a law extraditing criminals back to China. This lead to the fear of China manipulating this law and essentially carrying out what has been dubbed ‘Legal Kidnappings’.
The law has been stalled but not confirmed as 100% dead yet. This has led to protests which have grown in hostility. The underlying issue is largely to do with democracy and emergency service brutality,.
Essentially Hong Kong does not operate on a general vote like we in Canada. Leaders are elected by a council of around 1,200 and is heavily Chinese influenced which has lead to Hong Kong residents feeling the system is unfair and wanting a democracy. Situations escalated as severe brutality has been taking place to handle protests (the largest of which was this Sunday and attracted 1.7M people, considering the region has close to a 7.5M population that’s quite a number!You may have seen some of the videos and pictures captured. Essentially special forces have been directed by China to use tear gas and force to calm the protests, which has seemingly escalated the violence on both ends. You may have seen the pictures with umbrellas, this is to protect against cameras and incoming tear gas used by police. The situation has worsened for the last few months so there is a hot debate on people fleeing Hong Kong to safer lands such as Britain and Canada. Due to weather, Vancouver is usually mentioned high on that list!
Another conversation regularly had. An inverted yield curve for government bonds has been an historic indicator of a recession looming. The US recently entered an inverted yield curve which has caused people to predict a recession. The technical meaning of a recession is a fall of GDP over the period of two or more quarters. Essentially meaning unemployment rises, wages remain stagnant and less purchasing takes place. Check out this article from Investopedia on the specifics of a Recession here.
According to CNN’s latest Live Analysis (here) the US GDP actually grew this last quarter, unemployment is at an historic low and job growth has been steady (remember a recession is defined as all of these factors being on a 6 month or more decline).
In fact, even Bank of America’s CEO Brian Moynihan claims a recession is not coming because of the above reasons (https://www.marketwatch.com/story/bank-of-americas-ceo-has-one-simple-reason-why-he-doesnt-see-a-recession-looming-2019-08-21).
However, the talk of the recession is more so based on trade disputes between China, and on a lesser scale, Europe. China reported a decline in the above this quarter, as did some countries in Europe. Economists are worried about a domino effect taking place which causes the US Recession, then in which following us all the way here to Canada forcing real estate prices to go down as people are not buying.
Further from this, what was dubbed ‘The Great Recession’ in 2007 to 2009, was a mixture of a recession, subprime mortgage crisis and housing market collapse to the US. This combination created a more deadly climate. Since then, authorities have released that the subprime mortgage crisis and housing market collapse, rather than the recession, were the more severe issues and were deemed to be due to widespread failures in the financial sector - including the federal reserve failing to take the reins on toxic mortgages. The argument can be made that even if a recession hits, it will not be anywhere near the severity of the last one.
This is a very hard one to determine. But Justin Trudeau has been coming under heat recently, Conservative has been sweeping the country and we have our general election come October. As campaigns have not officially started yet, we do not know outright what each party is looking to do for Canada. Some believe the Conservatives getting into power will change things drastically in the favour of sellers in real estate (not just Vancouver). Others feel an NDP win would help out buyers even more.
Unfortunately all of these points are ‘wait and see’ territory. All anyone can do right now is make an educated guess at best. We have to sit tight and hold. Interestingly though, there are arguments for each side which could stir the market up OR down. But until the event actually takes place we won’t know.
Thanks for tuning in this week! Once again we are not economists so do not take the above as ALL of the information. We recommend doing your own research and planning your financial decisions based upon your own circumstances.
Until next week.