4 Mar

Economic Update 2014


Posted by: Tony Passalacqua


Benjamin Tal Feb 2014 economic update (summarized bullet points):


  • The Eurozone currently has a 25% unemployment rate overall, with a 50% unemployment rate among young people.  They have a very different culture, however, where not everyone has to be 100% independent and people just share and move in with one another if things get tight.
  • He predicts that spending will increase in the Eurozone over the next 2 years
  • He currently feels that Germany has the most attractive real estate market in the world
  • He feels that days of massive increases with oil and commodity prices are over, and we will see those prices stabilize.
  • The US is generating more jobs in higher paying sectors, instead of just more overall jobs.  This is creating more stability
  • Delinquency rates in the US are back to normal, and credit scores are at an all time high.  People have not been spending for a number of years, and the lenders were not doing much lending.  As a result, the people are “starving”, and can’t wait to start spending again.  The banks will begin to open up due to higher credit scores and better quality jobs, so this will drive the economy going forward and likely cause interest rate increases.
  • He doesn’t expect the Feds to touch interest rates until 2015 at the earliest
  • Long term rates will likely top out about 80bps-90bps higher than today.  People need to remember that an increase from 2% to 4% is still a 100% increase in rates, which has major impact on the economy, so t keep that in mind when wondering how high rates will climb.
  • Canada actually borrowed our way out of the recession.  As a result, we are carrying more debt than most countries coming out of a recession, making us more susceptible to rising interest rates.
  • The US lowered debt levels during the recession, so they won’t feel the impact of rising rates as much as Canada will.
  • He feels that the Canadian dollar had no business being at par with the US dollar, and actually belongs somewhere between $0.85 and $0.90.  The reason we got so high was that while the rest of the world was working through some very difficult times, Canada stood out as a stable place to invest money.  Now that things are improving in the Eurozone and US, we are seeing less investment in Canada, hence the dropping Canadian dollar.
  • Before going into the recession in 2008, the US had build 60% more than Canada, and more importantly, had 33% of their mortgages in sub prime.  Sub prime mortgages in Canada only make up 5.8% of the total.
  • 30%-35% of the overall housing market in BC is owned by investors.  The good news is that, while many of these investors are foreigners, only a small portion of them live elsewhere. 
  • In Vancouver, more than 50% of the investors have no mortgage or have large down payments.  This shows commitment, and is good for long term housing prices.
  • Vacancy rates are currently at 1.7% in Vancouver and will gradually lower.  A strong rental market like this encourages investors and brings stability to housing prices
  • Canada’s young people have record high education at the same time as record poverty in these same people.  Education isn’t translating into high paying jobs right now.
  • Home ownership rate has reached its peak as 1st time home buyers are priced out of the market and are being forced to rent.