Bank of Canada Governor Mark Carney came out today and declared that "the recession is over".
Oh boy, oh boy.
Guess we will be wrapping up the blog, throwing everything we have into real estate purchases, and getting back on the bubble gravy train.
But wait... isn't this the same Mark Carney who insisted, back in 2008, that Canada would not be hit by a recession in the first place?
Wasn't this the same Mark Carney that said our country wouldn't feel the same economic pain that was hitting the United States?
So what we actually have, then, is great news from the brilliant minds who never saw this coming, did nothing to prevent it, then denied it was happening.
And if the bank's new forecast proves correct, Canada's first recession since the early 1990s lasted three quarters, making it one of the shortest downturns on record. The shortest recession ever in the midsts of the greatest worldwide economic downtown since the Great Depression.
And Carney's prescient comments hearlding the end of the recession come out on the same day we are told that we are on the verge of a commercial real estate crisis.
Touted as "the other real estate bubble", investors are being warned that commercial real estate’s decline is a significant issue facing the economy because it may result in more losses for the financial industry than residential real estate. This category includes apartment buildings, hotels, office towers, and shopping malls.
It seems that US banks have been charging off (effectively assigning to the write-off bin) their commercial real estate loans at the fastest pace since the late 1980s. As the economy has struggled, developers and landlords have had to rely on a helping hand from the US Federal Reserve in order to try to get credit flowing so that they can refinance existing buildings or even to complete partially constructed projects.
From Vancouver to Manhattan, we are seeing rising office vacancies and declines in office rents. The issue for the financial sector is that the loans on their books have had to be written down to reflect the sorry state of commercial real estate. Though the US banking industry has for the most part turned in a stream of impressive profitability this quarter, the concern amongst investors is how much more of these loans are going to have to be written off.
The insurance industry is also impacted by the commercial real estate situation. Some of the leading insurance companies have invested about 10-12% of their assets in commercial mortgages. If the value of commercial properties were to continue to decline, then the write downs in mortgage loans on the books of these companies would severely impact their shareholders – not to mention their customers.
And the economy?
I see another 'revision' in Mark Carney's future.
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