The first rule of futurism, or future studies, is that someone always profits from change. The current economic environment in the U.S. would seem to benefit nobody. Economic activity is rotting like ice in a spring thaw, house prices are dropping, and the outlook continues to deteriorate. Many homeowners, who seized the opportunity offered by low interest rates and strong housing markets to buy their first houses now face the prospect of bankruptcy. And homeowners who used their mortgages like credit cards, cashing in on the increased equity in their homes, are now paying a hefty price for their imprudence. And it’s not just the U.S. that is suffering. While the strength of Canada’s currency, the loonie, was at first a point of pride for Canadians used to being ridiculed for having the “northern peso” of the “world’s coldest banana republic,” the cost to Canada’s manufacturing and export industries has been enormous. Over roughly the last four years, Canadian exporters have experienced almost a 50% increase in prices to American customers purely because of the rise in the value of the currency. China, which many see as the powerhouse of the future, will suffer a decline of 2-3% of real GDP growth as its principal customer, the United States, retrenches from the spending spree of the last few years.
But the first rules of future studies is playing out with a vengeance. American manufacturing, having suffered through years of an overpriced dollar, is surging again, and exports from America to the rest of the world are following suit. Indeed, I believe the end of the U.S. recession, now in full swing, will come not from consumer spending, as usually happens at this stage in the economic cycle, but from manufacturers and exporters. Their demand for products and services will rise, their need for workers and materials will rise, and the economy will follow them out of the wilderness.
Likewise, the slowing North American economy will take some of the wind out of the resource boom, most notably in oil. Clearly, that doesn’t work to the benefit of resource producers, but it will give industry and consumers time to adjust to a more expensive supply situation. This will be important in the future, as the global demand for natural resources, fuelled by the surging growth of China and India, as well as other rapidly developing countries (“RDCs”), will continue to push up the prices for resources for many years to come. But the free market system is remarkably resilient, and can adapt to almost anything – if it’s given time, and the softening economy is taking the steam out of the resource boom temporarily, which will also give the economy time to adjust to these new realities.
As well, concerns about the environment and climate change will benefit as well. A tighter economy will require companies to reduce waste in order to increase profits. Since pollution is just another word for waste, this will mean companies will look for ways to reduce pollution, increase energy efficiency – and dump less carbon into the atmosphere. This won’t be true everywhere and always, but the last big jump in energy efficiency came after the oil price spike of the 1980s, in the wake of the Yom Kippur war.
And falling stock markets provide the truly competent financial advisors the best of all possible opportunities to pick up new clients. In bad markets, those financial advisors who get by on a slick line and a big smile go into hiding because they don’t know what to tell their clients. They would rather go missing that show themselves up as being the incompetents they are. Meanwhile, the best advisors proactively call their clients, and field queries from prospective clients. They know that bad times are when clients need them most, and when they need to be most available. Moreover, they also know that the best time to buy is when everyone else is selling, difficult as that is. They will have specific situations in mind with particular price targets, and be readying their clients to give away their cash reserves, buying into investments that will be the big winners in the next cycle.
So, the lesson from all of this is that, bad as the current environment seems to many people, the bad times also carry the seeds of the good times to come – and at the same time benefit those who are properly placed and prepared right now.
Someone always benefits from change. And the obvious corollary to the first rule is: Make sure that you are that someone.
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Hello Richard, and all who review this blog of the housing market .
It is, in my opinion “the pretend to the future path of housing”. Meaning no one “Expert nor layman” knows the true depth of where the future may go in the present housing debacle in the U.S and no doubt the trickling effect to specific Canadian cities, in the near future. The only positive recourse that I feel should be noted in the Canadian market is that the best neighbourhoods in the best parts of the country will continue to maintain their values if only because the “Money Boomers” are and will continue to purchase their main residences and investment properties / cottages simply because they have the resources / money to do so regardless of what is happening out in the “other real world”.
Unfortunately, whether we like it or not, (as typical working class Canadians), there is an enormous amount of capital available to the Boomer generation and they must place their money somewhere, does the equity markets have any sense of stability???!!! So the bottom line is, the money markets will always flow to the stable side of investments which appears to be the safest of all, quality property in the areas of best interest according to the wealthiest populist.
Hoping this is good food for thought and subsequently may your home / residence continue to support your future gains that will be required to keep you ahead of the game!!! Cheers Courtney