If the sales of existing houses fall by 14.5% within a month, then there may be something wrong on the real estate market. This is what is happening in Canada now. Further detail figures also show that the market is in the process of going crazy and crashing. With 100% certainty you can never tell if the crash really starts now, but it´s a very strong indication.
We have to point this out again, because in Canada as well as in Australia the real estate crash didn´t happen, that took place in the US ten years ago and the whole US economy was dragging down. Canadians and Australians simply continued to consume brutally, until now. Real estate is also more likely to be part of everyday consumption patterns there. Buying, collecting, buying something else, relocating, debt restructuring, even more debt, no problem.
According to the Canadian Real Estate Association, sales of existing homes fell by 14.5% from December to January. In a year-on-year comparison from January 2016 to January 2017, it´s “only” a minus of 2.4%. But what is just as worrying is this: The number of new homes offered on the market fell by 21.6% to its lowest level since 2009 in a month-on-month comparison. 85% of all Canadian parts of the country were affected.
In December, the number of houses sold reached an all-time high in December. And bang, the crash immediately came after that. This 14.5% crash is also a record! It´s pointed out that there have recently been sharp declines, especially in the major urban areas. The association also mentions that since January, more stringent state guidelines for the granting of real estate loans have been in force in Canada.
Does the combination of a completely overheated market and stricter Government regulation mean that the market will collapse? It’s possible. The situation was similar in the USA in 2007, when the real estate market was completely overheated. And from the state side, instead of stricter regulations, rising credit interest rates came, which resulted into the large crash!
The experts also point out, however, that the recent record rise in December may have been caused by the fact that many buyers were still buying houses quickly before the credit regulations became stricter. The real estate prices themselves do not “yet” crash. But that shouldn’t take long with the aforementioned data? Nationwide, house prices are still rising by 2.3% year-on-year. But in Toronto, for example, prices fell by 4.4% year-on-year. The number of homes sold in Toronto fell by 27% month-on-month, which is higher than the national average.
It’s inevitably so: If on the buyer’s side there are not enough buyers, sellers will continue to go down with their prices until the prices become attractive or affordable again for buyers. The crash probably started. After all, the bubble has been inflated ten years longer than at the neighbours south of the border.
Incidentally, the nervousness of the Canadian economy as a whole (grossly over-indebted) is shown by the following fact: The latest labour market data in Canada showed a leap in unemployment. Since 2009, not as many jobs have been lost in January as in January. Observers point out that in the most populous province of Ontario, minimum wages have recently been raised from 11.26 to 14 Canadian dollars. This probably prompted the employers with 137,000 jobs to put a lot of part-time workers at the doorstep.