76% of Canada's national wealth is involved in real estate, and the market is slowing down: data – National


Canada is a rich country with a gross domestic product of more than $ 2 trillion and a national wealth valued at more than $ 11 trillion.

But how much of these riches are involved in real estate? A considerable part, it happens.

Canadian Real Estate Coverage at Globalnews.ca:

Statistics Canada issued last week its third quarter report on national wealth, which is the "value of non-financial assets in the Canadian economy."

Total national wealth reached $ 11.415 trillion in the third quarter, and at $ 8.702 trillion, the real estate sector accounted for 76% of that number – almost a quarter, with the exception of a quarter.

This was the highest both figures had been, returning to the second quarter of 2007.

This chart shows real estate as a share of national wealth in Canada and the US:

Analysis of the US Federal Reserve data indicates that this is a larger share of national wealth than real estate development in the United States.

But it was not always so.

Data from both countries show that real estate as a share of US national wealth was previously 75.3%, compared to 67.6% in Canada.

This began to change with the recession of 2008.

READ MORE: New report tells B.C. real estate market amid a recession that could last 3 years

Real estate as a share of US national wealth began to decline in the late 1970s, rising from 75.3% in the second quarter of 2007 to 70.5% in the fourth quarter of 2008.

This happened at the same time that the real estate sector as a share of Canadian wealth was growing, reaching 74.3% in the first quarter of 2009, while in the US it was 70.2% at the time.

This chart shows how real estate wealth has tended in Canada and the US from 2007 to 2018:

These trends emerge when Canada saw real estate grow consistently as a share of national wealth over the last decade. In the US, meanwhile, real estate wealth fell amid the Great Recession and began to recover around 2012.

Canada's growth has been driven mainly by rising land value, as shown in the following chart:

The value of Canadian land has grown consistently from the first quarter of 2009 to the first quarter of 2017, going from just over $ 2 trillion to about $ 4.2 trillion in that period.

But then values ​​began to stabilize, dropping to $ 4.1 trillion in the third quarter of 2017. Prices have rebounded, but growth has not been as consistent since then as it had been in the past decade.

The value of residential and non-residential structures also grew over that time.

WATCH: Over $ 1,000,000 of Vancouver Listed Homes

BMO's senior economist, Sal Guatieri, was not surprised to find that real estate represented such a large share of Canada's national wealth.

The stock rose amid a "sharp rise in home values" that has taken place in some Canadian cities over the decade, particularly Toronto and Vancouver, he told Global News.

He said the amount of real estate could become a concern amid a "sharp and sustained correction in house prices given the effect of wealth on spending."

READ MORE: Falling B.C. real estate market designed to reduce domestic sales to almost 10 years of low

Research by Moody's earlier this year talked about the "wealth effect" – the effect of household wealth on consumer spending.

The credit rating agency analyzed US consumption and estimated the effect of wealth at 4.5 cents, which means that for each $ 1 change in household wealth, consumer spending may change from 4 , 5 cents.

A slump in spending attributed to falling house prices may be an obstacle to GDP growth.

Guatieri, for example, did not immediately seem concerned.

"Fixed prices are not big," he said.

"Only if prices fall dramatically is it likely that people will take the costs down."

The BMO has estimated that Canada's domestic reference prices will grow less than one percent next year and two percent in 2020, dragged by "tougher mortgage rules and higher interest rates, so the stock will remain modestly lower ".

The latest trends also come amid the implementation of measures to curb demand in Vancouver and Toronto, which in recent years have been Canada's hottest housing markets.

B.C. has implemented a set of measures since 2016, bringing a 15 percent ownership transfer fee on foreign buyers that year that showed a clear effect on price growth.

This chart shows that property prices in Vancouver began to fall sharply after July 2016, which was the last month before B.C. instituted a property transfer tax on foreign buyers.


Subsequently, the province introduced several new measures in the 2018 budget, including raising the tax range of foreign buyers and implementing a speculative tax that charged 0.5% on second homes that are not rented for more than six months in a year. .

Ontario, meanwhile, introduced in 2017 a series of housing measures, including a 15 percent tax on non-resident speculators in the Great Golden Horseshoe, as well as expanded rents controls and the ability of counties to level taxes on empty houses .

Real estate prices in Toronto also cooled down.

WATCH: B.C. mayors ask for speculative tax changes

Guatieri may not be concerned about the growth of real estate wealth, but CIBC economists feel quite different about the effects of a housing slowdown in Canada's economy.

"For Canada, the real estate market is more important to the global economy than at any other time already recorded," wrote Benjamin Tal and Royce Mendes.

They noted that residential investment accounts for 7.5 percent of Canada's economy, which is only a historic peak.

These charts show residential investment as a share of GDP and housing-related employment as a share of the total, just below the historical peaks in a CIBC report.


The authors noted the Bank of Canada's (BoC) argument that "the worst is over and housing markets are stabilizing."

But from their point of view, "it's hard to agree."

BoC's workforce model says six quarters can pass before a rate hike can be felt in the economy, they noted.

In this case, however, only five quarters have passed since the first change of this cycle, and "we are already seeing a deceleration in indicators related to housing," Tal and Mendes said.

"As a result, we are not as optimistic as the Bank of Canada for contributing to GDP growth from housing in the coming years," they wrote.

© 2018 Global News, a division of Corus Entertainment Inc.


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