Interview with Marcy Rossel, Chief Economist of Leading Real Estate Companies of the World®, about the state of the world economy.
by Robin Lasure / photography AJ CANARIA, MOXIWORKS
After the turmoil of the last 18 months, what would you advise investors?
One of the best tips I would give is to pay close attention to what their portfolio looks like. Given the large changes in the value of assets over the last year, I recommend that people review and rebalance their portfolio of stocks, bonds, real estate and cash and assess whether they have distributed them according to the stage of life in which are located.
What would you say to first home buyers who feel confused by the real estate market?
Whenever you are in a market with rising house prices, which is the rule without almost any exceptions - buyers of the first home will invariably feel a step back. What we are seeing now is not really different from the situation in the 1990s and early 2000s, and even before the pandemic, when first-time home buyers and young people were already having difficulty buying. The pandemic only brought these difficulties to light and made them worse.
How has the consumer pandemic affected the economy?
It shifted the positions between savers and borrowers, putting the former in a lot better position. These are the elderly, usually baby boomers and the late generation X, who have passed the age of repaying student loans. Globally, savers are enjoying a period of low inflation and low interest rates, combined with significant increases in the stock market over the past two or three years. They have a lot of money to invest in the housing market.
Why is this so?
In some respects, they do so in order to diversify their asset portfolio. As a result of gaining great wealth in the stock market, people are starting to look around and think, "Where else can I invest my money?" They still believe that the housing market is one of the safest investments in the long run. And one can take advantage of it for longer than the stock market.
Do you expect an increase in interest rates?
We know that interest rates are tied to inflation forecasts, and the US Federal Reserve and central banks around the world have expressed readiness for a longer period with inflation above the usual allowable 2 percent. I think this means that in the coming years we will have potentially higher interest rates. I'm not saying that interest rates on mortgages will reach 7 or 8 percent. It's just that their value will be a little higher than usual. We also know that the Federal Reserve is likely to reduce its support for mortgage-backed securities first. Since the beginning of the pandemic, he has intervened and bought such securities. I believe that he will reduce his support for the markets and this will start with mortgage-backed securities, because of the stability of the housing market. With this in mind, I believe that the lowest interest rates are behind us, but that does not mean that they will be historically high.
Is inflation rising?
First of all, it is important to look at what it is. We all understand that inflation in general means rising prices over time. For example, housing and college fees are rising faster than average, but technology is usually cheaper. If we derive an average from all this, we will get the total value of inflation, which reflects the prices of all goods in all markets. The average tends to rise as the economy tends to grow. The Federal Reserve and the world's central banks provide the money, and the amount of banknotes must grow in proportion to the economy so that we have enough paper money to pay. The task of the Federal Reserve and central banks is to stimulate paper money to grow along with economic growth. If paper money is outpacing the growth of the economy, we are witnessing hyperinflation, then governments are printing so much money that everything is starting to rise not by 1-3% per year, but by 100%, for example. During the pandemic, we saw a period in which the prices of everything collapsed due to falling demand. Now the situation is returning to normal and we see that prices are rising. Many commodities, such as timber, semiconductors and second-hand cars, have high inflation rates. Governments are not interested in market dynamics in the mismatch between supply and demand. They monitor the main rate of inflation. At present, it is difficult to distinguish between the two concepts.
Does this mean that there is a market mismatch, or are we seeing a long-term problem?
For policy makers, and for people like you and me, it is important to understand whether this is a temporary and / or individual dynamic driven by the market. For example, is it a problem with toilet paper and hand sanitizers that will go away quickly, or is it a long-term problem that will require the government to take measures such as aggressively raising interest rates. I think most central banks around the world will wait for the situation to calm down. They cannot see the big picture at the moment due to the constant movement of the different values.
In what other ways has the pandemic affected the economy?
I find it amazing how the pandemic brought to light market dynamics taken for granted. Most people, for example, have no idea that semiconductors around the world are made by a handful of companies, the largest of which is in Taiwan. As much of the world's semiconductor production, widely used in many fields today, is concentrated on the small island of Taiwan, any disruption to production there is felt around the world. Before 2020, we all understood globalization in theory, but we recently learned a lesson in globalization first hand.
Are we seeing a global economic recovery?
First, the pandemic is not over. For those of us who are part of American culture, life is normalizing to some degree. The UK economy has shrunk by 9% since the start of the pandemic. Australia's is 1% higher than before. The US and Chinese economies have surpassed pre-pandemic levels. Although global housing markets are showing good results, if we look more closely, we will see an uneven recovery in economic activity. Different economies are recovering at different rates and I expect this trend to continue next year. This will affect central bank policies. Those of them who have been moving in the same direction for the last 18 months will start to diverge, and I think that next year will be remembered with major changes in exchange rates. When foreign home buyers enter the market, they are likely to encounter a very different exchange rate than before the pandemic. This, as well as the speed of recovery that will lead to the normalization of monetary policy, will be different for different countries. The United States should raise interest rates faster than Europe and the United Kingdom. China is also recovering rapidly, albeit amid ongoing tariffs and trade restrictions imposed on it by the United States, which have not changed under the new administration. From a trade point of view, it seems that the pandemic and trade wars of 2018 and 2019 have never happened.
What are your forecasts for the economy?
Over the next six months, I expect central bank interest rate differentials to be at the root of significant changes in foreign exchange markets. Even before that, we will see fluctuations in economic recovery, especially given the pace of vaccination, which has slowed in some countries but accelerated in others. 2022 will be a year of recovery, with a six-month period of divergence between different economies and a subsequent period of convergence. Supply chains will operate at normal speeds, which will stimulate the resumption of new housing construction. Given the increased demand for housing, the pressure on prices should be reduced, which in turn would make it easier to buy.
Reproduced with permission from Luxury Portfolio
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