In January 2021, all walks of life in the Greater Toronto Area are already tired of fighting the epidemic, but the real estate market is very active and shows no signs of fatigue at all. Real estate agents continue to release small advertisements in their circle of friends that housing prices in a certain area have hit a new high, making the long-silent real estate market once again become the focus of public opinion. A friend told me that the sales situation of the house opposite her home is as follows: The house listed in September last year for 1.99 million was canceled due to no interest. It was relisted in January this year and sold for 2.2 million in less than a week. The house is still the same house, but the buyer's mentality has undergone a 180-degree change in the past six months, from waiting and watching to being ruthless, from waiting and watching to attacking first and then suffering. If the fair market value of the house mentioned above should be 1.99 million, then the current transaction price is a bubble; if the fair market value should be 2.2 million, then the transaction price should be a return to value, while last year's listing price was a value depression. Why do people walk around lowlands and climb high slopes? In less than half a year, has your income increased significantly? The Kuainiu market came too suddenly, how should we deal with it?

       Federal immigration suddenly expanded its recruitment, inviting 27,000 work permit holders with one year of work experience in Canada to become permanent residents of Canada. For those who get a PR card, there is no non-resident real estate tax NRST when buying a house. The borrowing capacity of non-residents for mortgage loans is only 4 times the annual income. After obtaining immigration status, the borrowing capacity immediately becomes 5 times the annual income. Housing prices in most areas will not only skyrocket in 2021, but they will also change from a slow pace to a fast pace. Are you ready?

01  Can economics predict markets?

Many people want to predict when house prices will rise and when they will fall; how much they will rise and how much they will fall. This idea is like trying to predict the rise and fall of the stock market. It is completely impossible. Human beings have the ability to accurately send satellites to designated locations in space, but they just cannot calculate the closing price of the stock market tomorrow. Some people say that economists are useless and that economics is completely useless because it is never possible to predict market trends, predict when a crisis will occur, or when a bubble will burst. In the seventh season of "Qi Pa Shuo", there was a PK between economist Professor Xue Zhaofeng and philosopher Professor Liu Qing. It was very interesting. Professor Liu attacked economics as having no predictive power. Professor Xue responded instantly: Economics can predict small-scale economic events by analyzing human behavior. For example, if price controls are implemented, there will be a black market. This sentence is very philosophical, what it says is The essence of economics is that people's reactions to the environment will have a reflexive effect on themselves and those around them.Person A's prediction will determine A's behavior. For example, if A thinks the price is reasonable, he will buy it; if B and A's predictions are the same and they take the same action, B will also buy. The more people buying, the more people will push up the price, so the price will rise. When C came to agree with A and B, the price had already risen. If C thinks that the price will continue to rise, and he will not be able to afford it if it rises again, he will take action. If D sees that C is so determined, he will not look back, and the price will be pushed up all the way. This situation usually occurs in the investment goods market, not the consumer goods market. The higher the price of investment goods, the greater the demand ; On the contrary, for consumer goods, the lower the price, the greater the demand. Whether a commodity is an investment product or not can be determined based on whether the demand increases as the price rises. When the stock price rises, the number of people opening new accounts in securities companies increases, and a large amount of money pours in; after the stock price plummets, more people close their accounts than open accounts, and a large amount of money withdraws from the stock market. In a country, if people generally believe that houses are investment products, then the real estate will have the attribute that the demand for houses will increase as long as housing prices rise, that is, it is an investment attribute. According to the 2018 CMHC Consumer Survey Report, 87% of Canadians believe that real estate is a good long-term investment; while Professor Robert Shiller disclosed in his new book "Narrative Economics" that only 43% of Americans believe that real estate is a good long-term investment. "Narrative Economics" studies the question of "how popular narratives influence personal decision-making." We live in Canada, so we need to know and get used to it. When housing prices rise significantly, transaction volume will increase, and at the same time, housing prices will be further pushed up until external forces intervene.

        Economics cannot predict prices and trading volumes, but it can predict small-scale economic changes by analyzing human behavior. The most difficult to read, but also the most valuable economics monograph is "Human Behavior" written by Mises. This book is the essence of Austrian economics. Mises believed that there is no distinction between macroeconomics and microeconomics. The only research goal of economics is human behavior. As for complex economic activities, Zhang Wuchang has the most insightful view: Economists can only explain complex economic activities after the fact, but cannot make predictions beforehand. The stock market and property market reflect the summary of individual behaviors, which are complex economic phenomena and therefore cannot be predicted. However, what we can predict is that, As long as the price rises, the trading volume will increase, and there will be a rush to buy, thereby further pushing up the price, because this is a normal reaction of human behavior to investment products.

In June last year, Landlord.com held an online real estate forum. At that time, everyone was worried about the downturn of the real estate market. The host asked the guests their views on the trend of the real estate market in 2020. Everyone was relatively optimistic, and I was the most optimistic among them. My view is that the real estate market will have a V-shaped reversal, that is, before the economy improves, the real estate market will lead the overall economic situation and retaliate. My level of optimism depends on the behavior I see: from April to June 2020, there were a large number of requests for mortgage loan extensions as people drew water from their property reservoirs to prevent the spread of the epidemic from affecting household finances. If the epidemic is controlled, the money everyone takes out will be reinvested, and Canadians generally believe that real estate is the best investment. The other panelists who were not mortgage professionals saw ducks on the surface of the water, but I could see the feet of the ducks under the water plucking the water. This is a typical example of predicting small-scale economic events by analyzing human behavior. After September last year, various banks have launched policies that provide cash incentives for switching to another bank, attracting borrowers with high interest rates to lower their loan interest rates by increasing mortgages and switching to banks. What I've observed is that as people switch banks, 90% of them withdraw more cash from their home equity. These mountains of cash will drive the real estate market to a boom in 2021.

In addition to narrative economics, the development of economics in recent years is very helpful in explaining economic phenomena related to real estate. "Xue Zhaofeng Economics Lecture Notes" talks about a phenomenon of supply and demand conversion, which is very worthy of attention: A person doesn't want to drive out when he sees a thunderstorm, and wants to hire a taxi. However, he finds that the fare has soared, so he drives out to make money as an Uber driver. This is the transformation from a demander to a supplier—— As long as the price is high enough, demanders can become suppliers. In the same way, as long as housing prices are high enough, more people will be willing to sell their houses; conversely, homeowners will be reluctant to sell when housing prices are low. The "endowment effect" in behavioral economics is also based on this principle: things you own are sentimental, so they sell more expensively. The endowment effect and the three-dimensional principle of housing prices, please see my previous article for details "Why House Prices Rise Fast and Fall Slowly" . The mainstream view of economics studies normal consumption behavior, not investment behavior. For example, when prices fall, demand will increase, which is called the demand principle. People will line up to buy toilet paper when it is on sale, but no one will buy it when the house price is low. This shows that toilet paper conforms to the demand principle, but houses do not conform to the demand principle, because the investment attribute of a house is greater than the consumption attribute.

At present, the real estate market in most areas has suddenly shifted from slow to fast, and many people are puzzled. Economic phenomena are composed of human actions, and economics can explain the causes of economic phenomena, even if human actions were not noticed or predicted at the beginning. Canada's real estate market has always been in a bull market, with different stages showing slow bullishness or fast bullishness. There are two reasons for a bull market: 1. When a house is used as a consumer good, that is, when it is used for self-occupation, the demand comes from the Canadian government every year 30 A national policy for thousands of new immigrants. At the same time, new properties are built in Canada every year. 20 Thousands of units, with new immigrants and natural population growth, supply has not been able to keep up with demand for a long time, so the real estate market has always been a bull market; 2. The vast majority of Canadians 87% People believe that a house is a good long-term investment. People have a strong willingness to buy a house, and the return on real estate investment is highly certain, which leads to outstanding investment attributes of real estate. Therefore, the phenomenon of slow bulls suddenly accelerating into fast bulls will occur intermittently.

Not everyone can clearly see the above economic phenomena. Pessimistic, optimistic and contented people have different views and actions.

02  Pessimism, Optimism and Contentment

2020 is full of pessimism and everyone is defensive. Afterwards, we discovered: "Pessimism is a liar. It attracts our attention but does not allow us to participate in change." - Luo Zhenyu's 2020 New Year's Eve speech. After experiencing the torture of the epidemic, we have discovered the preciousness of every day, the value of life, the power of love and mutual support, all of which need the support of home, and home needs a safe and comfortable house. I am glad that people are gradually getting rid of the control of the shadow of the epidemic on their emotions and lives. We have raised our heads from pessimism and depression and begun to look into the distance. The reactivation of the real estate market is not only a kind of confidence, but also a kind of strength. It is a true reflection of people taking actions for a better future.

A truly optimistic person is one who prepares for 3 or 5 years from now, or even after retirement. When the epidemic was just brought under control, A and B discovered that most people were still in panic, queuing up to grab masks and toilet paper, house prices were suppressed, and transaction volume was almost frozen. They decided to act at this time to invest after the epidemic. After the vaccine was developed, C and D discovered that they really needed to prepare for the future, so they also took action. Although the cost was higher than A and B, it was earlier than those EFGH...Z who were still waiting and watching. In the current real estate market in the Greater Toronto Area, whoever is more sincere in admitting his mistakes and is willing to pay a higher price for his mistakes will be able to grab a house.People who are still hesitating in circles will pay a greater price for their pessimism and inaction.

A person who is naturally content and happy will not be jealous of anyone. People who rent houses envy people who own houses, and people who own houses envy people who have multiple apartments. This envy chain does not work for people who are content with what they have. People who are dissatisfied and don't work hard are often jealous and resentful, accusing real estate investors of "having made no contribution to society, so why do they have so much wealth?" All real estate investors I know, without exception, are families who work hard, pay taxes honestly, and are motivated. They not only love their jobs, but also delay gratification to the maximum extent to accumulate wealth for their own better life in the future. No family wants to rely on government relief after retirement. Most real estate investors have to bear monthly negative cash flow, take care of investment properties after work, work hard and truthfully file taxes to meet the bank's income and debt requirements when applying for a mortgage. There are very few professional landlords. None of our clients are professional landlords because it is difficult for professional landlords to borrow mortgage loans from banks. Either be content or work hard, otherwise you will become a resentful wife or husband who only blames others.

Although Austrian economics disagrees with many traditional economics, there is one point that is consistent with traditional economics: People are more willing to quickly satisfy current desires and postpone solving immediate difficulties, even if overcoming immediate difficulties can create greater utility in the future. This is human nature. Human behavior openly reflects human nature: Some people buy toilet paper when it is on sale, but no one buys when a house is on sale. Poetry and the distance are always easily lost to the confusion in front of you. Some people rushing to buy toilet paper lamented: What contribution do those who invest in real estate make to society, and why do they have poetry and distance? People who lack vision, dare not take risks, and are unwilling to take responsibility will not act for the future, but All human values are reflected in actions , as one old monk said:  Happiness is not something readymade, it comesfrom your own actions.” , happiness is equal to the result of your own actions.Where can happiness come from without action? People who feel that they are unfortunate are always jealous of people who take action. Their optimism minus pessimism is negative and they are not satisfied, so they become jealous. People whose optimism minus pessimism is a positive number are net optimistic and will take actions to change their destiny. For people whose optimism minus pessimism equals zero, contentment is the happiest state. People who are optimistic and take action account for about 20% of the population, so 20% of the people own 80% of the wealth; people who are a negative number between optimism and pessimism are net pessimistic, do not take action, and only hate those who take action, about 80%. These 80% of people own 20% of the wealth; I have not met contented people so far, and they account for about 0.0000001% of the population.

If you are optimistic about the stock market, you will invest in the stock market; if you are optimistic about real estate, you will invest in real estate. The certainty of real estate returns in Canada is far greater than that of stock market investment, because the demand for real estate is created by immigration policy. This is an advantage of living in Canada. Don’t waste your money.

03  Speculative impulses and unfounded worries

In a previous article, I said that when Canadian real estate prices increase by more than 8%, real estate speculation will occur. I won’t repeat the reasons. Let’s talk about how to deal with it. At present, in the Toronto real estate market, there have been cases where houses are put up for sale immediately after settlement. These real estate speculators are very sad and hateful. What is sad is that they do not have the ability to hold real estate for a long time and cannot obtain long-term investment returns, so they can only speculate in the short term. What is hateful is that they disrupt the market order. People who apply for loans from the main entrance of the bank have the ability to hold real estate for a long time, whether it is for self-occupation or renting out; people who can only obtain loan sharks through sideways do not have the ability to hold real estate for a long time, but they insist on gambling in the real estate market. This situation will only appear in a certain area, a certain type of real estate, and there are fast cows or even crazy cows. Otherwise, short-term speculation will not be profitable at all. Classmates, knock on the blackboard. There may be real estate speculators lurking among the people grabbing offers with you. These people have incomplete IQ and EQ. They should have gone to the stock market, but they only appeared in the real estate market because of the emergence of the fast bull market. The only thing we can do in this situation is: ask the real estate agent to tell you the fair market price of the target property. Fair market value, and set a red line for yourself. When the FMV exceeds 10%, you will quit and grab the OFFER. Don't compete with people who have speculative impulses.

When someone asked me about a loan, he said that his real estate agent told him not to over-leverage. I don't understand this suggestion. It's up to the bank to decide whether the leverage is high or not. If you apply for a loan through the main entrance of the bank and are approved for a loan covering 80% of the house price, do you still have to pay 35% down as suggested by laypeople? If the bank approves a mortgage of RMB 600,000, it means that if the interest rate rises from 1.8% to 4.79% in the future, you can still afford the mortgage of RMB 600,000, because the stress test interest rate used by the bank when approving the loan is 4.79%, even though the actual interest rate is only 1.8%. There are always people who worry that trees will grow to the sky, but they forget that the earth has gravity. Even if they want to over-leverage, the bank will have to agree. In addition, many people do not understand the true meaning of over-issuance of money. The over-issuance of money is released through the purchase of government bonds. In the six weeks last year, the Federal Reserve purchased more government bonds than the Fed purchased in the 10 years from Bernanke to Yellen. These government bonds must be repaid. If interest rates are raised, these debts will cause the United States to go bankrupt. Therefore, raising interest rates is no longer something ordinary families should worry about. Overdrafting money means overdrafting the future. You will understand if you overdraft your credit card or checking account. If the overdraft funds are subject to interest rate increases, you are really not far from bankruptcy. In 2000, Japan invented a method to release liquidity by purchasing government bonds, that is, QE. Now 21 years have passed, and the national debt has become heavier and heavier, and interest rates and inflation rates have been undercover for 21 years. The United States followed Japan's lead in QE for the first time in 2009. Twelve years have passed. The more money is printed, the more addictive it becomes, and interest rates have never been able to raise their head. How is it possible that as soon as you take out a loan to buy a house, interest rates around the world rise? Japan has been recruiting central bank governors and ministers who can raise interest rates and inflation for many years. If you are confident that you can miraculously raise interest rates, you can apply for the job.

04 Slow Cow and Fast Cow

Canada's immigration policy has created a long-term bull market in the real estate market, but some years are slow and some are fast. At the same time, the speed of various properties is not the same in the same year.

I have been observing the investment portfolios of real estate investors. If the investment properties held by various properties are relatively balanced, then every year there will be a property that is in the fast market. For example, investors who hold multiple suites, condos, townhouses, and detached houses at the same time. Over the past 10 years, one property has experienced rapid growth every year. This balanced investment portfolio makes investors more confident. However, no matter which type of property you hold, as long as you continue to invest in real estate in the past 10 years, you will be a winner in life. When filling out a loan application, we require applicants to disclose their family's assets and liabilities. I found that families whose total family assets exceed 5 million, and whose net assets after excluding debt exceed 3 million, are usually real estate investors, not financial asset investors. Optimizing your investment portfolio is something that real estate investors never finish. When the property in hand is in a fast bullish state, investors should take advantage of it to make additional mortgages and withdraw cash to invest in properties in a slow bullish state. For example, if the real estate in your hand is a detached house, and the price is going crazy now, you can press more and withdraw cash to buy a CONDO that is in a slow bull state; on the contrary, when the price of CONDO is going crazy, you can press more on CONDO to prepare for buying a detached house.

For those who are in need of self-housing, properties that are in a bullish state are the easiest to get on the bull market, so don’t wait until the bull goes crazy and then regret why you didn’t ride on the bull when the bull was slow. From 2010 to 2016, the condo market in Toronto was in a six-year slow growth period. Many people actually missed it. It was only after 2016 that they thought of riding it, and the price increased a lot. At present, CONDO has entered the slow market again, and the Canadian government has allowed 27,000 young people with work visas and working in Canada for more than one year to become permanent residents at once. From the age structure and purchasing power of these new immigrants, the target property for self-housing should be CONDO.

For investors, they should make good use of the transition between the fast and slow bull markets to optimize their investment portfolio; for first-time homebuyers, being able to get on the bull market is the most important. It doesn’t matter what the bull market is. If you are catching up with the slow bull market and your legs are not in good shape, you should make a prompt decision and ride on the bull before it goes crazy. Buyers who need to upgrade their own homes are more embarrassed to catch up with the fast-moving market. They must first increase the mortgage on their original homes, take out as much cash as possible, and then get pre-approval for the new home. The most important thing is not to miss any opportunity to bid. Sellers are naturally greedy, and no one will ask for a low price. Competition between buyers and buyers will push up prices step by step. At this time, there is no skill. Whoever is more determined to admit his mistakes and has deeper pockets will be able to buy a house. When buying a second-hand house, the risk of riding the wrong bull is limited. If you buy an pre-construction property or a house, the risk of riding the wrong bull is doubled. Buyers who have no experience in buying a house or investing are advised not to take on such a high-uncertainty transaction as buying futures real estate. There are very few major developers who develop townhouses and detached houses. If you want to buy off-plan, the most important thing is to check the builder's past experience and history. Ontario New Home Guarantee Insurance Company Tarion's website has information about all developers. Buyers must check it themselves and cannot rely on the salesperson's words.

Conclusion: Some people complain that economics is not useful in daily life, and I completely disagree. Economics can not only explain economic phenomena ex post facto, but also predict them. People who say that economics is useless have only learned superficial traditional economics and have not learned the more profound logic of human behavior. In March 2019, I wrote "Why House Prices Rise Fast and Fall Slowly", which used the latest economic research results to explain the principles of house price changes. This article is a companion article to it. 95% of real estate in Canada is privately owned, with stable mortgage policies, almost no macro-control, and no messy projects such as housing provident funds. The buying and selling of the real estate market is basically pure market behavior, so it is crucial to understand the role of economic principles in market behavior. There is no difference between a person who understands but does not act and a person who does not understand at all. People who have not accumulated wealth for future retirement have no right to envy people who work hard to invest in real estate. Investors should increase their exposure to Kuai Niu real estate and invest in the Slow Niu sector; first-time homebuyers should seize the fleeting opportunity of Slow Niu and invest in the Slow Niu sector as soon as possible. Buyers who upgrade their own homes, haha, have no choice but to fight.

Time is not forgiving , translated into English as follows: Man is subject to the passing of timeLooking back on the opportunities we missed in the past 10 years, we have no chance to make up for it. Thinking about 10 years from now, how little can we do today and how many things can we do in time? The Year of the Ox is here, and the real estate market has also entered the Year of the Ox. Hongyu is here to wish all readers a happy New Year, and good luck in getting rich. In the Year of the Ox, let’s make a fortune together.