Written by: Samira Fatehyar
Synopsis
Listen to the podcast version here:
I don’t need to tell you how crazy the last few weeks have been with all the new economic indicators coming out. We’ve seen the biggest GDP contraction in modern history but we are also seeing other economic indicators turn positive. What does this all mean? We talk with Chris McGee, a senior investment analyst for Yamaha, about a way forward through this economic uncertainty. Finally, we end like we always do with the European View. This week we’ll be discussing the German housing market and how it’s been fairing through the coronavirus economic crisis.
Economic Update
GDP Contraction
The biggest news that came out during the last 2 weeks was the massive GDP contraction the US experienced in the second quarter. Though, I will make it known that this is the first estimation of the numbers and there will be a revised estimation at the end of August. I’ve been hearing a lot of people confusing the GDP numbers as the media sometimes referred it to a 32.9% GDP contraction and other times as a 9.5% GDP contraction. Which one is correct? Well, they both are. See, the 32.9% is an annualized rate of the GDP contraction. That means that if things were to continue as bad as what was observed in the second quarter, then over a year’s time we would experience a 32.9% GDP contraction. Okay, so what does the 9.5% represent? The 9.5% GDP contraction was on a quarterly basis, meaning that that was the contraction observed in that quarter alone. Let’s take a look at Graph 1, below, where we can see GDP as it relates to every year since 1948.
Graph 1
GDP on a quarterly basis from 1948-2020
https://fred.stlouisfed.org/graph/?g=eUmi
As you can see from Graph 1, this is a pretty insane drop in GDP compared to any year since 1948. Many have asked me, how does this compare to the Great Depression of 1929? Based on historical data, the largest annual GDP drop that occurred during the Great Depression was 12.9%. Now, don’t freak out. Yes, we saw a 32.9% drop on an annualized basis, but we still need to see how the rest of the year fairs before we can determine what the annual GDP contraction was.
So then this question arises, are we in a recession or depression? A recession is defined as a GDP contraction that occurs for two consecutive quarters. We have achieved that, so we are presently in a recession. The question now is are we headed towards an economic depression? An economic depression is characterized as experiencing a GDP contraction for two or more years OR having an annual GDP contraction of 10% or more. So technically, we won’t really know until sometime next year. I don’t know if we are heading for an economic depression, I don’t think anyone does, but we do need to be made aware that this was a massive GDP contraction.
I think it’s extremely important to understand how the Bureau of Economic Analysis (BEA) arrived at their estimate of the GDP contraction. In the report, the BEA used source data that was available for the past three months which included:
Consumer spending on goods; shipments of capital equipment; motor vehicle sales and inventories; durable goods manufacturing inventories; wholesale and retail trade inventories; exports and imports of goods; federal government outlays; and consumer, producer, and international prices.
As for data that only had two months available they used:
Private high-frequency credit card transactions data to better capture shifts in consumer spending, news reports on reopening, and industry and trade association reports, that include volume data, such as health care patient visits and traveler throughput.
This is important to note because it helps us better understand the diverse data sets they used to reach the grim estimate that they did. In their report, they went on to describe the trends they were seeing which helps us get more insight on where things are going. In their “Real GDP and Related Aggregates” section they discuss a number of declines in many different sectors. The report states:
Within nondurable goods, the leading contributors to the decline were clothing and footwear, gasoline, and food… Within heath care, both hospital and outpatient services decreased, based on volume data for hospital services and outpatient visits as well as credit card transactions. The decrease in food services and accommodations was primarily accounted for by the decline in purchased meals and beverages… Within recreation services, the largest contributors to the decrease were membership clubs, sports centers, parks, theaters and museums… Within “other” services the decline was widespread; the largest contributors were personal care and social services
With this, we can see that many sectors in the economy are decreasing, and while some make perfect sense, like recreation services, others are worrisome like hospital and outpatient services or food purchases. Another notable decrease was found in our exports, as both goods and services declined. “Within goods, the decrease was widespread; the largest contributor was capital goods…Within services, the largest contributor was travel.” Other notable sectors that saw decreases included motor vehicle sales, investments in equipment and structures, imports of automative vehicles and engines, and single family housing starts. It should also be noted that the sum of private fixed investment and consumer spending, which is private domestic demand, decreased by 33.7% in the second quarter.
Now, if we look at the price indices that the BEA reported on, we would see that the price index for gross domestic purchases declined by 1.5%. This means that prices for goods, in general, are declining with the exception of food and energy prices. If we were to look at the personal consumption expenditures (PCE), we would notice that it declined by 1.9%. Both these indices exclude food and energy but what the PCE tells us is that prices are decreasing for “clothing and footwear as well as financial services.” This makes sense as I’m sure many of you have seen retail clothing stores displaying extreme discounts to attract customers to buy from them.
Now, though it looks like everything declined, real disposable personal income (DPI) actually increased by 44.9% in the second quarter. So what does this mean? This metric shows us the income left over after paying taxes. Why did this increase? Well, according to the BEA, this happened due to the CARES Act as well as unemployment benefits and the extra unemployment assistance the government had been giving people (the extra $600 every week). But it was also seen that there was a decrease in personal current taxes. This is both good and bad news, it all depends on how you look at it. The good I see is that the personal savings rate went up to 25.7% in the second quarter as compared to the 9.5% that we saw in the first quarter. This means that more people are saving their extra money in the event that the economy continues to deteriorate. The bad news is people aren’t paying as much in taxes, which is great for the average American, but this is the main source of revenue for the government, so it is not helping our national debt crisis.
ISM manufacturing index
Another interesting metric that came out last week was that of the ISM manufacturing index. It showed rather a very positive number that has many people asking, what’s really going on? Well, let’s first step back and understand what the ISM is and how the ISM manufacturing index is tabulated.
Graph 2
ISM from July 2017 to July 2020
https://www.marketwatch.com/story/us-manufacturers-expand-in-july-for-third-straight-month-ism-finds-but-executives-say-not-all-the-jobs-are-coming-back-2020-08-03
The ISM is the Institute for Supply Management, which is the largest association for supply management in the world. They aim to provide education to professionals in the industry. So how is their manufacturing index calculated? The ISM sends a survey to purchasing managers in 300 manufacturing firms. It monitors any changes to production month over month.
Looking at Graph 2, above, we can see a V-shaped recovery forming in the index. So, why is it positive when we just experienced the largest GDP contraction in modern American history? Because this is just a survey, it doesn’t actually measure actual output but instead purchasing managers’ sentiment. In their report, it mentions that the indices for employment, new orders, and production all increased. But, I will point out that the increase in employment only went up to 44.2% and traditionally, anything under 50% signals that employers are still laying employees off.
According to the report, a furniture manufacturer said, “Incoming orders are slow. This is usually our busiest time of the year, but production is reduced due to the lack of demand. Additional layoffs expected.” A transportation equipment purchasing manager stated, “Overall business remains down almost 70%. We are hanging on to as many employees as possible, but we will have to lay off 30% or more for at least two to three months until September or October.” This is some pretty bleak commentary but it just underscores how much we need to take this index with a grain of salt. I truly hope things start improving, but I also believe in looking at data with an objective viewpoint.
A Conversation with Chris McGee
A conversation with…
Mr. Chris McGee
I recently had a very interesting conversation with a colleague of mine, Chris McGee, about the economic uncertainty we are currently facing. He mentioned a few interesting points but overall offered a different perspective to understanding where we are headed, as opposed to my perspective. Because of this contrast, I thought it would be a great idea to interview him and share his insight. I have transcribed the conversation here in case you’d rather read it than listen to it in the podcast version.
Chris currently works as a Senior Investor Reporting Analyst at the Yamaha Motor Corporation. There he is involved with capital markets and reporting since he is involved with all facets of asset-backed commercial paper securitization facilities. One of the many things that makes Chris unique is the fact that he worked with both Merrill Lynch and Countrywide during the Great Recession of 2008. There he worked directly with asset backed securities. He is also a Navy veteran and holds a MBA from Pepperdine University, also my alma mater. To listen to the interview, please check out the podcast. The following is a transcript of our conversation.
Samira: Hi Chris, welcome to the show, we’re very glad to have you here.
Chris: Thank you for having me, I’m glad to be on.
Samira: So, I’m just going to ask you right off the bat, you worked in the CMBS industry for sometime and I’m wondering if you see any parallels to what you saw then and what’s happening now?
Chris: It’s really funny that you mention that. When you say then, I’m referring to the 2008 time frame. But, what’s really scarier was just before that, 2006 and 2007, is eerily familiar to where we are right now. Back then, interest rates were beginning to rise, people were buying real estate and a lot of the real estate market was hot everywhere you went, which is not too dissimilar to what we see in California and some other markets right now. Folks were pretty much walking around thinking this could last forever or things could continue to go up. What was special for me was, I was actually working in residential mortgage backs at that time and subprime mainly. I was trading whole loans and I was trading bonds on the institutional level. What we saw was there were numerous hedge funds that were over levered that could not make their margin calls as bond prices started to go down. There was all of this accounting shock that was going on in the background that wasn’t really bubbling up to the top and when we were looking at a $30 trillion mortgage market and thinking about the ramifications of all of this, and myself and my colleagues, were thinking wow if people really knew the damage that could possibly be done, if all the hedge funds fail, they’d be running in the street. So, 2006 chugged along and people started to get a little defensive on an institutional level. People started thinking that this can’t last forever and maybe we should start, like the squirrels, putting some nuts away for the winter. But, no one thought it was going to be the calamity that 2008 was. They thought that there was going to be a downturn and that there would be some consolidation but no one thought it would be that bad. By the time 2007 rolled around, we knew it was going to be that bad. By that time, Bear had failed, there were numerous large non depository mortgage banks that were failing and we just knew that it couldn’t last. I can remember vividly, Thanksgiving 2007, I was in line to get some macaroni and cheese or something and I’m telling my family members, “Hey, you know you better get ready, there is going to be a lot of people out of work and a lot of people on the street.” Within a year, everything really just fell apart. AIG had to get bailed out, Leeman failed and didn’t get saved, and it just took awhile for, it took from 2006, think about it, up until really Leeman, when people just really believed that we are really in some serious trouble here. And so that was almost 2 years and that’s kind of like where we are now. We’re still enjoying the party, the music is still playing, it still feels good, the drinks are still flowing, but you know, it’s coming to an end. Pretty soon it’s going to be time to come back to reality.
Samira: Yeah, I feel that on so many levels and I’ve been talking about it in my podcasts as you know, and this is some really great insight of what you saw then and what you’re seeing now, unfortunately. We all hoped that we wouldn’t be experiencing this stuff again, but you know everything is cyclical, unfortunately. So what are some economic indicators that you tend to look at to gauge how the market is doing in general?
Chris: I really like to look at GDP. I really like to look at consumer confidence right now. I think its very tough to use traditional economic indicators at this point in the cycle because the government has their hand into what’s going on. So, we don’t have the invisible hand pushing things, we know exactly who’s hand is pushing things right now. So if you go around and give consumers an extra $600 a week plus a $1,200 sign on bonus and you do that for 3 or 4 months, of course you’re going to get some power out of the economy. The question comes after the election. After the election the stimulus is going to go away.
Samira: That was actually going to be my next question.
Chris: Yeah, I think there is going to be a lot of casualties of war. This is warfare, you have one side against the other right now and there is just casualties in the middle. Those casualties are probably shot but just don’t know it yet; they are dead men walking. There’s going to be a lot of people that just don’t get their jobs back and just don’t get their old lives back. They’re not going to feel that pain until sometime in 2021.
Samira: That’s the unfortunate truth. Do you see a different economic outcome happening if one party wins over the other?
Chris: Great question. I think that there’s going to be stress no matter who wins. If the Republicans win they are going to force, especially if they can win both chambers of Congress and the executive branch, a certain level of austerity on some of these more populous states that are on the coast, ie California and New York. They’re not going to be getting bailed out or other pension liabilities and their large social safety nets. So, that’s going to sting and that’s going to hurt. If the Democrats win, there’s certainly going to be stress because they’re going to repeal all of President Trump’s tax cuts and right now, they’re kind of happy because this is a climate change opportunity like none other. I mean they stopped airline traffic, they have car emissions cut down, they have so many people working from home and they’re going to continue to push that agenda; so that is going to cause a significant amount of stress for someone, somewhere; a lot of people. There’s going to be a horrible horrible sting no matter who wins, it’s just being delayed right now.
Samira: So it’s basically two different groups of the population that will get hurt regardless of who wins?
Chris: Right, there’s a subset of the population that’s going to be hurt regardless of who wins. It’s just a matter of how bad it’s really going to hurt.
Samira: And is there a better outcome of either party or do you think it’s all the same?
Chris: No, I mean I honestly think that if the Republicans win, I think you have a shot of going back to what people consider to be normal, a pre-Covid type society. If the Democrats win, I see more social science experiments coming and we don’t know if they are going to work or not. You know, there’s things that are already going through the California Assembly, right now, where if you haven’t paid your rent during Covid, and it doesn’t matter whether or not you had the means to pay it or not, but if you haven’t paid your rent, they’re going to try to stretch that out as far as April 2021 or when you can pay or give you terms to pay it or this that and the other things. And we don’t know how receptive the market is going to be to expanding that social safety net. And then on top of that, if you continue to expand the social safety net on top of the $2.2 trillion of the CARES Act that’s already been passed plus a potential other $3 trillion that could be coming in the next couple of weeks, you know, one thing no one is talking about is how are we going to pay that back. There’s going to be more taxes coming and if you have more taxes coming during a recession or almost depression, then you’re likely going to see significant inflation too and that’s going to sting.
Samira: I agree 100%. I think that’s where we’re going unfortunately and I’ve been looking at the national debt, I mean it’s at $26.5 trillion right now. It’s insane. I don’t know how we’re going to be able to get through this, but I want to know if you were a policy maker and you had the President’s ear or Congress’s ear, what would you propose be a better solution than what we are seeing right now with bailing out corporations and helping create zombie companies?
Chris: Zombies and weak zebras, I heard someone say the other day. It’s really tough right now because we’re in this election cycle and there’s so much that’s on the line. So, you can have the President’s ear but right now the polls have the President’s ear more than anything else. He’s putting this all on Congress and he’s trying to let them take egg on their face if they’re not going to get the job done. Now, that doesn’t mean that the President shouldn’t have his priorities and if it were up to me I would just say, “Hey look, you know what- step right in front of the camera- and say I’m willing to meet right in the middle all the way through December on all these different issues and let’s just get through this.” Honestly and just be honest with the American people and say I’m sitting here and I got my pen in my hand and I’m willing to meet you in the middle to get the American people what they need and make it a date of December. Outside of that I just think that people will continue to lose confidence and they’ll just continue to build angst. Let’s be honest, there’s a lot of folks that are getting an extra $600 a week on top of their weekly unemployment insurance payment and that’s more than the money they were making when they were employed. And then there is a ton of people who really needed the leg up and they really needed the hand up, but they’re not going to have a job to go back to when all this is over. So what’s going to happen to them and we’re not talking about baristas everywhere, we’re talking about middle level managers in some of these larger corporations, there’s just a lot of jobs that are going to go away and people just aren’t going to have them, and it’s almost heartless.
Samira: I like that you bring that example up because I think a lot of people are thinking it’s the hourly workers that are not going to have jobs at the end of this one, when really it is some middle level manager positions that we need to pay attention to because they do make up a good part of our economy. I mean, I’m not trying to write off baristas or anything like that, but they are paid more and we could get into a whole discussion of whether that means they’re more valuable or not, but at the end of the day that means more families are going to be struggling through all of this and that’s not going to be fun to see.
Chris: So, I think the thing for them is, and the sad part is they just don’t know it yet, the shock is not going to come and no one is preparing for the shock. How do you know you should prepare for the shock when all you hear is hey you know when this is over then we can go back to the office and things ought to be great, but I just don’t see that happening if a company can figure out a way to become more efficient while you are at home, why would they bring you back? Because labor is the largest expense under SG&A, why would they bring you back?
Samira: You’re absolutely right, at the end of the day that’s what corporations and companies look at, it is efficiency and cost reduction, the cold hard truth. It’s very sad to see but it is the reality we have to face and we have to try to figure out how to prepare ourselves for the new future and what it looks like. But, I do want to ask what’s some advice you would give some of the viewers moving forward with all of this economic uncertainty?
Chris: I would say look in non-traditional places and do your own fact checking. Don't just take anyone’s word for it. Always go out and try to find more data points that you can check to confirm your opinion on something. Right now, so many of us are spoon-fed, even my fiancee, she gets a lot of news and other people get a lot of news from Facebook and she’s quick to tell me, hey I saw this on Facebook, I’m like Facebook isn’t real news. But it’s the media source that so many people get their information from. And sometimes you only get one little sound bite or part of a quote paraphrasing. So I would recommend that folks look at all the pieces of this puzzle that are coming out right now. I mean you get information from DC, you get information from your local leaders, you talk to people. If and when you do go out during these days and times, try to put all the pieces together, don’t just look at them disjointedly. How do they all fit together? And is it painting a picture of what is really going on around us?
Samira: I think your advice highlights a deficiency, we unfortunately have in our society in that we don’t have a very large attention span and to do all of that work its not favorable, it’s not something we look forward to do so if we could an easier way to be spoon-fed information, I think a lot of people would take that. So I do appreciate that point of view and trying to tell people to educate themselves because that’s one of the many ways that is going to help us get out of all the mess that we’re in right now. Alright, so thank you for coming on, I really appreciate you talking to us and answering all these questions.
Chris: Not a problem, it was my pleasure, any time.
European View
As I’ve been covering the housing market in Europe, I thought it would be a great time to look at the health of the German housing market. Interestingly, the German housing market is resilient towards the coronavirus pandemic and Germany is actually continuing to see prices for housing units increase. Before we talk about the residential market there, I think it’s important to look at the some economic indicators in Germany to better understand why were are seeing a few things.
German Economic Indicators
Let’s take a look at German GDP numbers as seen in Graph 3, below.
Graph 3
German GDP from July 2007 to August 2020
https://tradingeconomics.com/germany/gdp-growth
As we can see, Germany took a major GDP hit, similar to what we saw here in the US, though it should be mentioned that their GDP growth has stayed very close to zero since after the Global Financial Crisis of 2008. This makes sense though, since Germany likes to remain rather stable than having large swings in one direction or the other.
Due to the fact that Germany’s economy is heavily dependent upon manufacturing, I thought it would be beneficial to look at Germany’s manufacturing PMI, seen below in Graph 4.
Graph 4
German Manufacturing PMI from July 2007 to August 2020
https://tradingeconomics.com/germany/manufacturing-pmi
This graph is especially interesting to me because it looks as if manufacturing has not only returned to pre-Covid levels but has surpassed it. In addition, manufacturing during the Global Financial Crisis dipped further than what is being observed in Germany now. This is also quite interesting to me because it looks as if Germany will recover faster than the US. Sure, their GDP did drop lower than ours, but it might just mean that they will experience it deeper but for a shorter period of time.
I think the last important economic indicator to understand before jumping into the German housing market is that of employment. Graph 5, below, shows the unemployment rate in Germany.
Graph 5
German Unemployment Rate from July 2007 to August 2020
https://tradingeconomics.com/germany/unemployment-rate
I’m going to admit, this is quite astonishing to me, seeing as how here in the US, we are seeing double-digit unemployment numbers and Germany is experiencing an unemployment rate of about 4%. Not to mention, that even in the height of the Global Financial Crisis they were still well under 10% unemployment. What we can take away from these economic indicators is that though they suffered a massive GDP contraction, their manufacturing industry is rebounding and their employment numbers are still considered healthy. So where does this leave the housing market?
German Housing Market
What we need to first establish is the fact that ever since Brexit took place, the new financial capital of Europe has moved to Frankfurt, Germany from its previous home in London, England. Now, there are many reasons why this happened but that’s for another conversation. Now, when people move capital to places, they also want to diversify. One of the “safest” assets has always been considered real estate. So, it shouldn’t be a mystery as to why the German housing market has become so attractive. Germany is a relatively stable economy, actually one of the most stable economies in the world. This translates to better returns. Inflation stays at a lower rate, growth stays low, and basically things don’t change drastically. This can be great, until it’s not. Deutsche Bank estimates the need for 5,000 new housing units in Frankfurt alone due to the Brexit effect, which will only increase home prices by €100-€500 per square meter. When you have anything in a state of equilibrium and introducing an outside catalyst, it can be a disaster if the system cannot adapt easily.
Currently, Germany is experiencing a very high demand for housing units. More specifically, Berlin is seeing the brunt of the demand due to many reasons, which includes the influx of startups coming to Berlin. Germans, in general, do not like owning their houses and instead sometimes opt to rent for 30-40 years at a time. This type of commitment would attract any investor to the area. In Berlin, for example, 85% of residents rent. But, there are now Germans also looking to buy housing which is exacerbating the already limited supply of housing units. According to Engel & Volkers, the average price per square meter in 2013 in Berlin was €2,526 whereas today it’s nearly €4,634. This is a pretty dramatic increase.
Because of this demand surge occurring in the market, property prices are rising dramatically, as seen below in Map 1.
Map 1
Price Growth in German Cities
https://www.ft.com/content/cb004fce-5787-48c9-bc5d-3c27e890a76c
As stated previously, Berlin is seeing the highest price growth because of a demand surge. It’s followed by Cologne and Munich. Munich is an already expensive city and to see prices increasing by as much as 67.3% in the past 7 years is quite astonishing.
Contributing Factors to this Problem
In a report done by Deutsche Bank Research, they found an extreme imbalance of supply and demand in the market.
According to the German Federal Statistical Office, just over 285,000 residential units were completed in both 2017 and 2018. This means that construction is significantly below the 375,000 units per year that will be required for the German government to achieve its target of 1.5 million new units by the end of the current legislative period in 2021.
Unfortunately, the coronavirus has only exacerbated the already dwindling supply of new housing units. One of the major contributing problems to the supply is the fact that there are many restrictions as to where developers can build new buildings. This shows one of the many downsides to too much regulation in the market.
But many agree that it is not only construction regulation that is contributing to this housing market problem. Many believe that migration, or to be more specific, immigration has led to a higher demand for housing and this made the overall situation worse. Though, if we look at Graph 6, below, we see that, that may not actually be a plausible argument.
Graph 6
German Migration
German Property Market Outlook 2020 by Deutsche Bank Research
Though there seems to have been an uptick in immigration from January 2019 to January 2020, net migration seems to be declining. This is quite interesting to see, because it’s also telling us that many Germans are leaving their country. Could the current state of the housing market be to blame?
Another contributing factor to this situation is the influx of foreign investors. Due to the many foreign investors coming into the market and buying up large portion of the multifamily stock, this has led to rent caps being introduced. In Berlin, the rent caps have frozen tenants’ rates for 5 years which started last year. There have been stricter laws introduced even on the federal level. According to Deutsche Bank's report
The reference period for the calculation of rent indices was extended from four years to six years at the end of 2019. Rent indices are historical records of average rents published by many towns and cities as a guideline. The extension of the reference period is aimed at slowing down the upward trend in average rent. Average rent acts [as] a benchmark for rental increases and also for the rent brake… So far, when properties are rented by a new tenant, the rent may not exceed 10% of the average rent level for comparable units in the area… The new rent brake allows renters to claim back excess rent paid up to 30 months in the past.
Although, this sounds great to tenants, this unfortunately is a turnoff for investors and developers. But, as of right now, there is a large argument about whether this rent cap and new definitions are constitutional or not. So, in the meantime, landlords are taking advantage of circumventing this, until the arguments are settled.
Because of all these factors, many have said that the increase in prices in the next two years will eventually lead to a housing bubble bursting. In Deutsche Bank’s report, “According to guidance from the European Systemic Risk Board (ESRB) in 2019, risk are set to increase in the German residential property market in the medium term. The ESRB sees spiraling price growth, overvaluation in city markets and the lack of quality data in lending standards as risks.” Due to this, I would advise against purchasing any housing units in Germany until prices start to decrease and things stabilize again. It will be interesting to see what happens in terms of the rent cap in place. My hope is that construction picks up again, but it looks like many developers are only focused on building single-family residence and not multifamily. This will deter multifamily investors and might very well change the present landscape, as more tenants move to home ownership. Time will only tell.
Compared to the US
If we compare the economic indicators of Germany with that of the US, we would see that the US is definitely struggling more in the manufacturing and employment side. Granted, the US is not as heavily dependent on manufacturing as Germany is, but it is still an important element here. One of the reasons Germany is going to get through this economic crisis faster is the fact that they have been able to mitigate the virus for the most part, with the exception of the anti-mask protests now taking off there. They suffered 9,100 Covid-related deaths with a population of 83 million people. That’s really great, compared to here in the US. But, let’s put the virus away for a moment, their trade policies are pretty non-restrictive and they are willing to trade with many countries that the US is not willing to. Now, I’m not trying to spark a political conversation because that’s not the point of this discussion, but Germany is more similar to Switzerland’s foreign and trade policies than the US is. If we were a bit more open to trade instead of our obsession with sanctions and tariffs, we might actually have a shot at getting out of the economic repercussions of this pandemic.
Seeing the struggles in the German housing market does ring a few bells for us here in the US as well. More specifically when it comes to rent caps and construction delays. There is always a debate for or against rent caps and though at certain times I think it’s needed, I think that we could go without it if we could just educate landlords and tenants. I will always be an advocate for education as being part of the solution. I’ve seen many landlords in the US defer their maintenance on their asset and then become upset when it depreciates in value. I’ve seen other landlords gouge their tenants simply because they can. I’d love to see more of the “smaller” landlords come about and actually understand what they are doing and the consequences of each of their actions. If more people could understand real estate and how to make money off of it without it being at the suffering of someone else, I think we could actually create positive change. Please don’t misinterpret what I’m saying, I’m not advocating for landlords not to make a profit, but instead not to become greedy. From what I’ve seen, I think the US society has gone towards an extreme of greed and it’s almost like we’re willing to do whatever it takes to make a dollar even if it’s at someone else’s expense. In other words, I feel as if we’ve lost our moral compass.
Concluding Remarks
When we look at the economy right now, everything seems so uncertain. What will it all look like after the election? No one truly knows, but I’d like to think we are resilient and will find a way out of this mess. Regardless of the election outcome, things will be hard, that is a fact. But like everything in life, everything always come to an end; the good, the bad, and the ugly. So, this too shall pass. It’s the natural circle of life. So although thing seem bleak right now and will probably continue to seem bleak, we must not lose sight of the fact that circumstances eventually change. The million dollar question is when, but in the meantime, we shouldn’t lose hope.
Please continue to stay safe and healthy everyone! I’ll write to you again in 2 weeks!