Chart of the month
Updated: Apr 28, 2020
I found this chart, although pretty optimistic, to be an interesting outline of what a best-case scenario could look like in terms of unemployment recovery by 2021.
When I posted this chart on our instagram, we had an interesting comment thread that analyzed this optimism, so I wanted to better understand what things would look like in a worst-case scenario, rather than a best-case scenario.
By analyzing the recovery of the first few big spikes in unemplyoment, I find it challenging to understand why this chart would forecast how employment could recover so promptly, so I (very roughly) modeled out what it would look like if we ported those two historic recoveries where we reached relatively similar unemployment to what NBC had forecasted:
Avina Capital - Canadian Real Estate Finance
In both scenarios, it's clear that employment recovery could take a lot longer than forecasted if it hits the sustained peak anticipated in the NBC analysis. The caveat is that unemployment has already far exceeded the forecast in the short-term, but there isn't much clarity on where it will actually land.
The implications of a macroeconomic factor like this on the real estate investment, development, and financing space can be pretty alarming, so we won't dive into them too much. What we do know, and can see in real-time, is that credit is tightening, acquisitions are tightening, and real estate is generally at a standstill "wait and see".
As a result of the wait-and-see mentality, we're watching micro factors closely to see where we can add value to clients in the short-term and long-term outlook through creative capital structuring.
What we can see from this rough outlook, is that a worst-case scenario would take us well past 2025. While we think this is extremely unlikely, it's good to understand what both an optimistic and pessimistic scenario could look like to better evaluate what a realistic scenario will look like.