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Home sales fell even more compared with house prices, falling 19% in December 2018 from a year earlier; it was the worst year for the Canadian real estate market since 2012.
Due to the previous entry of foreign speculators, Vancouver and Toronto in Canada are among the top cities in global housing prices, and Canadian officials are determined to squeeze out the real estate bubble. The Canadian government mainly comes up with the following three means: first, the mortgage examination is becoming more and more stringent, especially for foreign property speculators, it is not so easy to add leverage blindly. Over the past few years, mortgage approvals have been easily approved in Canada to boost its economy and encourage domestic and foreign investors to buy homes.
Second, raise mortgage interest rates, too low mortgage interest rates easily stimulate domestic and foreign investors to speculate in real estate. Third, collect taxes. Canadian officials charge a 15% foreign buyer’s tax on foreigners who buy houses in Vancouver and Toronto, which should be regarded as a quite powerful killer’s mace, and the enthusiasm of speculating tenants has declined.
After the real estate crackdown, the Canadian economy was immediately affected. Because the Canadian economy has two major engines: one is exports. According to statistics, exports fell by 0.1% in the fourth quarter of 2018. The decline in exports means that it is a drag on the economy, mainly due to the sharp drop in international oil prices and the sharp decline in global demand for energy, which has affected the revenue of Canadian oil exports.
Another is that overseas investors have suspended investment in Canada’s energy sector because of falling energy prices. In January 2019, Heskey Energy of Canada, controlled by Li Ka-shing, announced that it would end its acquisition of MEG Energy of Canada, which was priced at HK $38.9 billion, because of “a change in the market environment”. Just imagine, with a decline in overseas investment, weak exports and a real estate bubble, the Canadian economy will certainly face short-term labor pains.
Under the influence of the Canadian real estate bubble, real estate investment has indeed weakened greatly. According to the data released by Statistics Canada, housing investment fell by 3.9%, new housing investment by 5.5%, decoration investment by 2.7%, and ownership transfer costs by 2.6%. Adding up these declines, investment in residential construction fell 14.7%, which is said to be the biggest decline since 2009.
From some recent data in places such as Toronto and Vancouver, it is not difficult to see that the signs of the bursting of the housing bubble are becoming more and more obvious: first, a marked decline in home sales; second, a sudden surge in the number of homes listed on the stock market; third, buyers seem to be waiting for prices to fall, willing to wait and see rather than sell; and the growing number of Canadians searching for “housing bubble” on Google shows that more and more people have lost confidence in the Canadian housing market.
In fact, as early as mid-2018, Goldman Sachs released a research report saying that house prices in Canada are overvalued and that the real estate bubble is more likely to burst in the next year or two. According to Goldman Sachs, a fall of more than 5% in house prices, adjusted for inflation, is considered a crash. Local economists say that the bubble in the Canadian real estate market will burst, house prices will fall sharply on a cliff, and national house prices will fall by 30% or even 40% all the way to roughly in line with household income, that is, in line with household income.
As for the weakness of the economy after the bursting of the Canadian real estate bubble, it is said that local people borrow money to buy food, which is a very normal phenomenon. Generally speaking, countries with good welfare are basically highly indebted, and people have the habit of spending ahead of time. Young Canadians are used to spending on credit and using tomorrow’s money to live a high-quality life today, but all this has to do with economic prosperity. If the economic boom fails, the quality of life will be affected, and it is reasonable to borrow money to buy food.