Current Events and Effects on Real Estate

Tuesday Mar 01st, 2022

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We have almost finished with the first quarter of 2022 and it has not been short of events happening.  Two years and counting, we are still battling COVID-19, Inflation is at a level not seen in over three decades (According to Statistics Canada, Canadian inflation surpassed 5% for the first time since September 1991, rising 5.1% on a year-over-year basis and up from a 4.8% gain in December 2021.) civil unrest everywhere, debt is at an all time high, major interruptions/backlog in the supply chains, Beijing Winter Olympics, Evergrande (Chinese Real Estate Developer) defaulting on their loans, and now a Russian war.  All these events eerily draw similarities to the financial crisis of 2008.  
 
What happened in 2008?
 
Lehman Brothers' Filing for Bankruptcy due to their high position in subprime mortgages.
Beijing Summer Olympics.
Georgia invades the breakaway state of South Ossetia, sparking a war with Russia as the latter intervenes in support of separatists in both South Ossetia and Abkhazia. 
Supply Chain Backlog due to lack of purchases as a result of recession.
 
How Did This Affect Real Estate in 2008?
 
The financial crisis ended up causing real estate to have a correction.
According to the Canadian Mortgage and Housing Corporation, new housing dropped to 118,000 from an average of 175,000. Sales of existing homes fell by 40% from their peak. The national resale price for a house dropped by 9.5% and new home prices fell by 3.5%.
 
How will the similarities affect real estate in 2022?
 
By now, everyone has seen and heard what's happening with the real estate market, and it can be summed up with one word, ludicrousness.  In previous blog posts, we've touched on multiple factors as to why real estate continues to increase in prices (link to December 8th post and January 24th).  With the aforementioned events above, and the old saying "history repeats itself", there are multiple sentiments and concerns that what we will see in 2022 will be the financial crisis of 2008 on steroids.  
 
With inflation and money devaluing at an alarming rate, more and more people are turning towards throwing their wealth into things that will have actual tangible value rather than keeping any stocks, mutual funds, or even cash.  The real estate surge isn't just happening in Canada, it is happening all over the world.  We have mentioned it is impossible to time the market, and we have also stated we don't have a crystal ball to predict the future, but things just don't seem quite right.  With prices on real estate soaring to new highs, and the similar events happening this year that resemble our last real estate correction, caution and continued monitoring so that we can minimize or even prevent what happened in 2008 from repeating here in 2022.

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