Hedge funds and banking institutions may already be feeling the pressure to attempt to contain the losses that are piling up (source: bloomberg).
An extended decline in the global markets will continue to place pressure on institutional financial markets, banks, hedge funds, and other traditional lending and investment firms. Investors will start to pull investment capital away from risk (out of the markets and funds) and may expose some of these larger institutions’ excessive leverage and risk exposure in the process.
This is almost exactly what happened with Bernie Madoff when his firm, Bernard L. Madoff Investment Securities, collapsed in December 2008. As long as there was no pressure on his firm from clients pulling out capital or asking too many questions, he was allowed to continue running his Ponzi scheme. Once investors started pulling capital out of the firm and questioning the transactions/reports, it became evident that it was all a house of cards and would come crashing down quickly.
If larger investment firms and hedge funds are attempting to “buy the dip” at this point in time, we believe they are making a grave mistake. We believe the downside risks associated with the Covid-19 virus event are just starting to unfold and the collateral damage that may come from this massive global shutdown that is currently taking place will be unprecedented. We don’t believe there has been anything like this happening in any recent history – even WWII pales in comparison to this event.
News is starting to hit the wires about large investment firms and Real Estate investment companies sounding the alarm. The fear is evident in the short content of a news article.
“Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and homeowners, landlords, developers, hotel operators, and their respective tenants and employees,” he wrote.
Just take look at the foreclosures in the major cities starting to spike in the maps below. This was before the virus closed down most businesses, and everyone losing their jobs. Give the fact that 70% or more of the world lives pay-check to pay-check, foreclosures and real estate values are likely to plummet lower to an extreme similar to how overpriced they are now.
I have talked about his in some presentations, and in videos in the past how real estate is grossly overvalued and when the music stops, prices will tumble. Huge opportunities for those who can preserve their capital until the recession matures enough will be able to buy real estate, businesses, and equipment for pennies on the dollar, but this will take another 1-2 years from now I imagine, but it will be great for those with money on hand when things get ugly.
<h3 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Current Los Angeles Foreclosure Map
” data-reactid=”20″>Current Los Angeles Foreclosure Map
Current San Francisco Foreclosure Map
Current New York Foreclosure Map
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Many of you may remember my Crunching Numbers article from just a week ago where I attempted to model what I believe would be the likely outcome of US GDP over the next 5+ years? Well, it now appears others are following up with their own predictions for US GDP. Based on some of the expectations within this Bloomberg article, my predictions pale in comparison to these comments. Source: https://www.bloomberg.com” data-reactid=”75″>Many of you may remember my Crunching Numbers article from just a week ago where I attempted to model what I believe would be the likely outcome of US GDP over the next 5+ years? Well, it now appears others are following up with their own predictions for US GDP. Based on some of the expectations within this Bloomberg article, my predictions pale in comparison to these comments. Source: https://www.bloomberg.com
Now, let’s try to be realistic about how this entire process is likely to take place. We know the economy will find a base (at some point) and attempt to recover from this virus event. The question is what does that base look like and where is the bottom?
We won’t really know where the bottom is in the global markets until most of the unknowns have been processed, most of the collateral damage has been identified and processed, and consumers realize the bottom is in sight. At that point, there is a real chance that the global markets will begin a recovery process that may eventually push to new all-time highs.
What we’re concerned about right now is the Q1 and Q2 economic activity and how that relates to consumer markets, credit markets, existing business enterprises and the potential collateral damage to hard assets like homes, commercial real estate and other foundations of wealth. We believe the first few dominos of this event will be the collapse of jobs, earnings, and consumer spending. The longer the global stays in a mostly shutdown economic environment, the greater the risks these critical numbers will implode – possibly taking with it the rest of the economy.
We believe the suspension of Foreclosures for a potential 12 month period may not reduce the total number of foreclosures across the US, we believe it may compound the problem. The suspension effort is designed to help people stay in their homes if their incomes become threatened or lost. But the reality is that a Foreclosure suspension will simply start to build larger and larger numbers of properties in foreclosure (waiting for the suspension to be lifted) while home prices potentially collapse.
We’ll dig into more data in Part III of this article and attempt to illustrate the data we believe will point to a clearer picture of how all of this may unfold in the near future.
As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.” data-reactid=”82″>Visit my ETF Wealth Building Newsletter and if you like what I offer, and ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article was originally posted on FX Empire” data-reactid=”84″>This article was originally posted on FX Empire
More From FXEMPIRE:
- We Are Concerned About The Real Estate Market – Part II
- Oil Prices Are Ready for to Hit New Lows
- Gold Price Prediction – Prices Surge as the Dollar Eases
- Silver Price Forecast – Silver Markets Continue to Build Base
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Toronto suburbs boast the most overvalued real estate in all of Canada – blogTO
While people in and around Toronto have just had to accept (albeit begrudgingly) the region’s outrageous home prices for what they are, it’s downright maddening to look at what you could buy in other parts of the world for the amount it costs for even a tiny condo here.
It’s not just the downtown core, either, with peripheral markets in the province continuing to see prices skyrocket to unseen levels, and homes in even small-town Ontario now on par with L.A. and other larger and far more desirable cities.
Though it’s obvious the region’s real estate is not actually worth as much as it’s going for these days, the extent to which it is overvalued at this point is quite shocking.
Canadian real estate estimated as 38% overvalued on average. In some GTA regions, up to 60-70% overvalued. If you bought a house in the last year or two in Canada, you’re screwed.
— PattyCakesXRP (@PattyCakesXrp) May 24, 2022
New figures from BMO (via Better Dwelling) show that while Canadian homes in general are about 38 per cent overvalued, the issue is the worst in Ontario, where home prices are about 55.4 per cent overvalued as of the first few months of this year.
What’s most interesting is that in Toronto specifically, this number is lower than the province as a whole — at 41 per cent — while in the surrounding suburbs, it’s far higher.
Cottage country areas like Muskoka, the Kawarthas, and Haliburton are approximately 64 per cent overvalued, the bank says, while the suburbs just outside of the GTA have the highest levels of overvaluation.
Properties in “exurb” areas like London, Barrie, Niagara, Guelph and Kitchener-Waterloo — that is, not the suburbs directly around the city, but just beyond — are now around 74 per cent more expensive than what they’re worth.
Vancouver and Toronto housing so overvalued crash is coming https://t.co/qevtT43oDp
— Rocketred (@wildcat2013) May 8, 2022
Given how fast home prices have climbed in Toronto and, as a result, around the city, experts say we have been on the verge of bubble conditions for some time now; the city was actually just ranked the second-biggest housing bubble in the world at the end of last year due to its severe overvaluation.
This will, stakeholders seem to agree, eventually lead to a swift downtown and market correction, likely later this year due to a number of factors, even without the government intervention that so many have been demanding to quell out-of-control price acceleration.
I think a better title would have been “Here’s how unaffordable the house market is”
— TheHarshTruth (@TheHarshesTruth) May 24, 2022
While B.C., Quebec and Atlantic Canada all join Ontario in having substantially overvalued housing markets, prospective Canadian buyers can still get some bang for their buck if they’re willing to move to Alberta or Saskatchewan, which are considered undervalued.
Real Estate Has Bucked the Deglobalization Trend – MSCI
- Deglobalization has had profound implications for portfolio construction in listed assets. Conversely, with real estate, there are indications that the asset class has become more global in recent years.
- Return dispersion across national markets has decreased, while property type has become a more important return driver across all markets, suggesting stronger international alignment, as cross-border transaction volumes have remained stable.
- Institutional real estate investors could still face challenges from deglobalization, but a historical preference for more transparent and stable markets may help counterbalance some of them.
Real estate has historically exhibited a strong home bias, with investors favoring their local markets. Where investors have sought offshore exposure, they have typically favored markets that offer higher levels of transparency, better governance and stability. This is not to say that investors have not allocated to markets that are less transparent than their home markets. Nor that they have not pursued strategies higher up the risk curve when they invested in foreign markets. But in aggregate markets with higher transparency and government ESG scores have tended to attract more real estate capital.
Globalized real estate drivers in a deglobalizing world
The demand for international real estate is driven by the world’s largest institutional investors, many of whom have explicit global real estate investment mandates. Surveys of investor intentions show continued strong demand for cross-border investments among this group.1 Despite this sentiment, the share of the volume of cross-border transactions, as tracked by MSCI Real Capital Analytics, has remained relatively stable over the last decade, ranging between 19% and 26% of total quarterly transaction volumes.2
Even with relatively stable flows across borders, there is evidence that real estate may have become more global based on return behavior. There has been a notable decline of total-return dispersion across national markets in the MSCI Global Annual Property Index since 2008. At the same time, the spread of returns across property types has increased across all markets as technology changes (like the rise of e-commerce) and the pandemic have disrupted real estate markets, causing headwinds for sectors like retail and office but boosting other sectors like industrial. These trends point to potentially stronger international alignment in the asset class: Unlike in much of the previous two decades, since 2019 there was a greater opportunity for outperformance from allocation decisions based on property type, rather than country.
Return dispersion decreased across national markets but increased across property types
Source: MSCI Global Annual Property Index
Could deglobalization affect real estate?
Political populism, the COVID-19 pandemic and increased geopolitical tensions have all contributed to concerns about deglobalization. Business cycles may become desynchronized, leading to wider variations in the performance of equity and bond markets across countries, lower correlations and higher volatilities. The investment impact of this trend emerged in recent years: In equities, correlations between countries and regional blocs have declined.
Going forward, global investors in bonds and equities may respond by taking a more nuanced approach to asset allocation — for example, by considering new, more focused country allocations for broad allocation decisions (geopolitical blocs, energy importers versus exporters or autocracies versus democracies) and placing greater emphasis on risk factors exposed by the war in Ukraine, such as sanctions risk, reputational considerations and currency convertibility. While it is possible that similar deglobalization headwinds may emerge for real estate investors, there are several factors that could mitigate this.
One example is that, as mentioned earlier, transparency, governance and stability have always been important considerations for global real estate investors, as it is an opaque and illiquid asset class, where asset-investment life cycles are typically measured in years (the median holding period for assets in the MSCI Global Annual Property Index has been six years). The result is that markets with higher transparency, better governance scores and stronger institutions represent the lion’s share of the opportunity set and transaction volumes.
Transparency, governance and stability have mattered in real estate
Where available, market-size estimates are sourced from MSCI’s Real Estate Market Size Report 20/21. For the remaining countries, market size is assumed to be 10% of GDP. Source: JLL, Our World in Data, MSCI
Institutional real estate investors may therefore have less exposure to countries significantly exposed to decoupling risk due to deglobalization. Of the approximately USD 2.3 trillion of assets that MSCI tracks in the MSCI Global Annual Property Index and MSCI Asia Annual Property Index, over 91% of the capital value was invested in liberal democracies with real estate markets rated as transparent or highly transparent by JLL.
Nevertheless, deglobalization could have knock-on effects that impact real estate. For instance, increased political polarization and pandemic-induced supply-chain disruption could drive “nearshoring” and changes to international trade patterns.3 These changes could in turn affect the volume, nature and location of real estate demand. For example, a move from just-in-time to just-in-case logistics could increase demand for industrial-warehouse space and see some of that demand shift away from markets that are further afield and more vulnerable to potential trade disruption.
While deglobalization could result in profound consequences in asset allocation and portfolio construction, different asset classes may be affected in different ways. The distinct features of the real estate investment process, as opposed to that for listed equities and bonds, as well as the nature of the opportunity set typically available to global real estate investors, may mean that real estate could be less directly exposed to the effects of this investment megatrend.
The authors thank Alexis Maltin for her contributions to this post.
1For example, see: “2021 Institutional Real Estate Allocations Monitor.” Hodes Weill & Associates and Cornell Baker Program in Real Estate, Nov. 10, 2021.
2It should be noted that purchases made by third-party managers on behalf of offshore investors will count toward domestic volumes rather than cross-border volumes and thus may underestimate total cross-border capital flows.
3Nearshoring is the practice of transferring a business operation to a nearby country, especially in preference to a more distant one.
With housing top-of-mind for Ontarians as election looms — Windsor's real estate market cools – CBC.ca
With the Ontario election less than one week away and interest rates rising, the real estate market in Windsor-Essex is experiencing a cool down.
However, the price of a home is still significant, leaving many constituents feeling left out of the market, yet hopeful that the election might bring with it some improvements.
“Optimism and hope is always there because that’s all we have, right?” said Shanike Gordon, a single mom with two kids renting an apartment in Windsor.
Gordon hopes to get into the housing market soon.
“That’s the goal at the end of the day — you have somewhere for you and your kids to be able to call home,” she said.
The latest numbers indicate a shift in the local real estate climate, with buyers taking a more conservative approach, and sellers not seeing as much competition for their houses as before, according to Windsor realtor Abe Alhakim.
“We’ve noticed a slowdown in the market over the past few months,” explained Alhakim, who works with LC Platinum Realty.
“We’ve noticed buyers have put their plans on hold, especially with the increase in interest rates from the Bank of Canada, which has already had one interest rate increase and more is planned over the next few months. And also there’s an Ontario election coming up, so people want to kind of see how things work out over the next few months.”
After months of prices climbing, the average price of a home in Windsor-Essex dipped to $692,759 in April. It was the first decline in the average sale price of a home since September 2021. At its peak, the average price of a home reached $723,739 in March.
The number of sales also dipped by 16 per cent in April compared to the month prior. Sales also dropped by nearly 19 per cent compared to April 2021.
Alhakim describes it as a “mixed market” where some homes are still selling significantly over asking price with multiple offers and bidding wars, while other houses aren’t seeing the same kind of demand.
As for what’s anticipated for the coming months, Alhakim noted, “that’s the golden question.”
“I anticipate the market will stay stabilized and balanced over the next few months, but it remains to be seen how expected interest rate increases are going to affect the market — and also the Ontario elections.”
He noted that the decline has some feeling “fearful” while others are jumping at the opportunity to buy a home at a cheaper price point.
Housing key election issue
Housing costs are a key issue for voters across Ontario, with bidding wars and low supply having driven prices up in recent years. To address the issue, the PC Party, NDP and Liberal Party leaders have all pledged to build 1.5 million homes if elected.
For Leamington’s Terry Maiuri, it’s particularly concerning as he considers the impact the soaring prices are having on his son.
“It’s just getting ridiculous for the younger generation, I’d say, to afford housing,” Maiuri said.
His 20-year-old son is close to completing his university studies, and Maiuri is concerned about what comes next.
“I told my wife the other day, with the price of houses, I said, ‘My God, he’s going to be living with us until he’s 40.’ Like, how does someone starting out as an adult afford housing, let alone apartment rentals?” he asked.
“It just seems a little ridiculous.”
He added that while politicians say they realize there’s a problem, he doesn’t think any party is doing enough to address the issue.
Windsor voter Lisa Lum says affordable housing is key for her this election. She said, after living in her Walkerville home for eight years, she was recently evicted after her landlord sold the duplex she was renting.
Now, she’s in a new home in the same neighbourhood, but it’s significantly smaller, paying $500 more in rent.
As for whether she might want to buy down the road, she doesn’t believe that to be realistic given the state of the market.
“I wouldn’t be able to with the bidding wars that are here,” she said.
“I mean, how do you even get the down payment when homes that were bought, you know, five years ago for $120,000, and now they’re going for five and $600,000?”
While she’s optimistic more can be done by political leaders to address rent control, she doesn’t have confidence much will change when it comes to real estate.
As for Gordon, she’s not sure she’ll be voting at all in the provincial election, but explained stronger action on housing could sway her.
“Anything that caters for housing, families, single families especially, I’m all for it,” she said.
Meanwhile, Alhakim continues to monitor the market, adding that he doesn’t expect a major correction in the market, but envisions the market settling into a plateau this year.
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