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Debt Ceiling and Market Crashes

“The news from France is very bad…”

We can safely modify Churchill’s opening line from a June, 1940 speech to: The news from the global economy is very bad.

We are clearly in a long term economic struggle. Possible outcomes are inflation/stagflation, low growth, contractions leading to lower prices, continued unemployment, and changes to the money supply.

What we know for a fact is that there will be painful transitions to new economic realities, and that they will take time to unfold.

What does that mean for Vancouver are real estate?

1) I think it’s very unlikely that we’ll see significant interest rate increases in the short term. This, clearly, will tend to protect local real estate prices against negative pressures.

2) I think that we will see inflation, which will also tend to cushion local real estate prices against negative pressures.

3) While inflation and low interest rates aren’t usually linked, I think that governments, especially the US government, will put up with inflation for a good while before beginning to fight it.

4) I don’t see a lot of growth in the US in the near term. This will contribute to low interest rates.

5) I suspect there will be more quantitative easing in the US, contributing to inflation (keeping in mind that the inflation is probably fighting strong deflationary pressure from reduced demand).

6) Low rates and more money in the US will be a positive for the Canadian dollar. This is a problem for an Canadian exporters. As a result I think we’ll see low interest rates here, despite us having a stronger economy than many of our competitors.

7) I think that Europe is, like the US, in for a lot of pain. The political union that has led to such open borders and common rules has not delivered a sustainable economic union. Again, I think this will lead to increased money supply and lower interest rates.

8 ) I suspect China and India will continue to grow, despite facing challenges, and I suspect that Vancouver will continue to benefit from Chinese wealth looking for a safe haven.

In conclusion I think that the unpredictably defiant local market that we’ve watched for the past decade will continue to confound observers by refusing to correct to apparently logical levels supported by income streams.

That’s just one man’s opinion. I could be wrong. I don’t recommend buying Vancouver real estate unless you like to gamble, have a non-income valuation of real estate or simply have too much money and not enough places to put it. For my traditional metrics based clients I suggest taking advantage of low rates while maintaining a safe position on the sidelines.

Comments are welcome.

My name is Rob Chipman and I’m a realtor, pilot and all around super hero based in Vancouver, BC. I really enjoy flying, playing guitar and hockey, real estate and the Chilcotin.¬† My company is¬†Coronet Realty Ltd., located at 3582 East Hastings Street, Vancouver, BC, V5K 2A7. I have a C-150L that I own with two other pilots, based out of Pitt Meadows. Do not hesitate to contact me by email if I can help you do anything, especially if its likely to be interesting.

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