We’ve been hearing from real-estate agents that the Vancouver residential housing market slowed down sharply after the announcement of a 15% foreign-buyer tax on Aug. 2.

The latest data from the Real Estate Board of Greater Vancouver confirmed that the sales volume of residential properties declined 26% year over year in August. The president of the board said, “Sales have been trending downward in Metro Vancouver for a few months. The new foreign-buyer tax appears to have added to this trend by reducing foreign-buyer activity and causing some uncertainty amongst local home buyers and sellers.”

Somewhat surprisingly, the MLS Home Price Index, which measures the price movement of typical homes, was still a little bit higher in August compared to July and a whopping 31% higher than a year ago. However, the average price of Vancouver detached homes dropped by more than 10% in August and is now down 18% from the peak reached earlier in the year.

Our suspicion is that Vancouver prices are heading lower, albeit with a lag, as residential sellers are normally slow to react to new market dynamics.

We have previously written about the possible damage that a housing crash could do to Canadian banks. Interested readers are encouraged to read the front-page article in the September issue of Canadian Edge.

Merger Mania

Merger-and-acquisition season seems to be in full swing, with the latest announcements of proposed mergers between Potash Corporation (TSX: POT, NYSE: POT) and Agrium (TSX: AGU, NYSE: AGU), as well as Enbridge Inc. (TSX: ENB, NYSE: ENB) and Spectra Energy Corp. (NYSE: SE).

The Potash/Agrium merger is clearly driven by market dynamics, with fertlizer prices down sharply due to excess supply caused by overinvestment in capacity when prices were much higher.

The companies are of the view that they can achieve $500 million worth of annual synergies by cutting costs and integrating distribution. This could add about 10% to the expected 2018 profit of the combined entity.

The companies expect the deal to close by mid-2017, but the merger will certainly face scrutiny from regulators since it involves two of the biggest fertilizer producers and distributors in the world.

The combined entity will be a substantial force and stronger than the standalone companies. We will follow the merger process with interest, but for now we’ll remain on the sidelines.

The proposed combination of Enbridge and Spectra will create an energy-infrastructure behemoth with an enterprise value of around C$165 billion, making it the largest such firm in North America.

Management sees the main benefits of the mega-merger as further diversification for both entities, an expansion of already-large balance sheets that will allow the execution of a lengthy roster of joint expansion projects, scope and scale of the enlarged business, and cost and tax savings.

We suspect that increasingly long lead times to obtain approvals for new pipeline projects have also played a role, especially in the case of Enbridge, whose $7 billion Northern Gateway project has recently been delayed once again.

The combined entity will have a mix of oil liquids and gas pipelines, liquids terminals, gas storage and power-generating capacity. Oil and gas infrastructure will contribute in roughly equal proportions to the profits of the combined entity.

Management says the merger will extend projected dividend growth of 10% to 12% annually through 2024, based on projected cash flows of current assets and future growth projects. More than 95% of cash flow will be generated by low-risk, take-or-pay contracts.

The transaction is expected to close in the first quarter of 2017, subject to shareholder and regulatory approvals. Enbridge has been on our watchlist for some time. We may use price weakness to initiate a position in the stock.