2024 GTA New Home and Condo Market Economic Outlook

The GTA has over 240 cranes in the sky, far more than any other North American city.

The construction industry is a very important sector that contributes 550,000 jobs and 57 Billion dollars into the Ontario economy.

According to Altus Group, there are some very positive statistics to share about the 2023 GTA new home and condo market.

The good news is reflected in the available inventory, the percentage of inventory sold, and the number of completions:

·      a year-over-year increase of 48% in available active high-rise condo units; and

·      a 103.5% increase in available active low-rise lots, as of November 2023.

Despite this increase, there still remains a shortage of available inventory with:

·      83% of high-rise condo units sold; and

·      86% of low-rise lots sold.

Altus Group also reports great strides in completed GTA new homes and condos in January to November of 2023, compared to the same period in 2022 with:

·      a 93% increase in high-rise condo units completed.

2023 was a record year compared to recent years, with a total of approximately 33,000 new homes and condos completed, which will be dwarfed in 2024 with 48,000 new homes and condos scheduled to be completed.

The impact of the government’s response to Covid-19 caused a delay in municipal zoning approvals, dramatic shortages in the supply chain, and aggravated the shortage of available labour.

With the end of the Covid 19 pandemic, the industry has adjusted and this was the catalyst for the sharp increase in completions in both low-rise and high-rise sectors.

Although we had increases in available inventory and completions in 2023, the GTA benchmark price has decreased November year-over-year:

·      new high-rise benchmark price down 7.3%; and

·      new low-rise benchmark price down 8.5%.

There was a surprising contrast between new GTA high-rise and low-rise sales statistics, January to November:

·      new GTA high-rise sales were down 37%; and

·      new low-rise sales were up 35%.

Why was there a decrease in high-rise sales and an increase in low-rise sales?

Most new high-rise buyers are investors who have owned their home in the GTA suburbs for over 10 or 15 years, and the price of their home has doubled or tripled.

The majority would borrow the 15% deposit on their new investment condo against their home.

Since the dramatic spike in interest rates, homeowner’s mortgage payments have generally doubled, and they don’t feel confident to borrow to invest in a new-high rise condo.

Potential buyers are also pausing from buying, because the 5 to 7 year closing dates of new high-rise condos create more uncertainty on where the rates will be in the future.

Alternatively, new low-rise housing has a completion schedule of 9 to 18 months, when zoning is approved and there are no major factors delaying construction.

The shorter closing schedule in low-rise means less economic risk for the buyer and attracts a much larger percentage of end users.

Record immigration is exacerbating the shortage of housing in the GTA, and many end users need a place to live and buy out of necessity.

These are the factors that caused the demand to increase in new low-rise and decrease in new high-rise sectors.

What is the outlook for 2024?

Record immigration, a shortage of housing, inflation, and the spike in mortgage interest rates are the major factors impacting the GTA new home and condo market.

Inflation is causing the dramatic rise in interest rates.

Canada is experiencing an energy crisis, a food crisis, and a housing crisis all at the same time.

The sharp increase in the Carbon Tax is causing the energy crisis, the higher cost of energy and the government reduction of fertilizer is causing the food crisis, and record immigration is causing the housing crisis.

The Federal Government increased it’s budget by 27% at the last fiscal year-end, at a time when they should be drastically cutting their budget.

These factors put huge upward pressure on inflation.

The Economy can be slowed down by raising interest rates, cutting government spending, increasing taxes, and reducing immigration.

In July of 2020, the Governor of the Bank of Canada, told Canadians that interest rates would remain low for a long time.

The overnight rate, the rate the banks borrow at and the basis for mortgage rates, changed from 0.25% to 5% beginning in March 2022.

Any Economics student would know that massive government spending leads to dramatic inflation, and higher interest rates.

Now we hear in the media that interest rates will stabilize, or come down, at the end of the second quarter of 2024.

Will interest rates decline at the end of the second quarter?

On our current path, there does not seem to be a realistic catalyst to reduce inflation and interest rates in Canada.

For interest rates to decrease, it may take a major shift in economic policy, which would not likely take place until 6 months after the next federal election, perhaps a year or 18 months longer than the end of the second quarter of 2024.

What we do know is, due to the record level of immigration and the shortage of housing, when the interest rates do level off or come down, the market will awaken to a record number of sales and a dramatic increase in prices.

We should expect to see both the price of new homes and condos, and the cost to rent, double over the next 5 years.

 

Invest before prices rise dramatically again and side-step the high interest rates with a 5 year closing date.

The Chinese Year of the Dragon is a time for strength and good luck.