GTA New Home & Condo Economic Outlook 2023

We certainly live in interesting times.

Last year, we saw rising prices in new homes and condos with a lower volume of sales.

The significant difference in 2022, was a pause in consumer confidence, due to a spike in interest rates.

Dramatically higher borrowing costs are a result of excessive government spending.

The Federal Government spent 30% above the allowable ceiling, and this was exasperated by Provinces and major cities’ additional deficits.

The pause in consumer confidence impacted the resale real estate market differently with lower prices, a lower volume of sales, and record low available inventory. 

The reason new High-rise and Low-rise markets are immune to the temporary downward sales price pressure is because the cost of zoned land, labour, and materials continue to soar.

It is very challenging for Developers to forecast the mid-term costs to build with severe inflation, supply chain problems, and a shortage of available trades.

Developers are risking their profit margin, cancellation of their projects, and even bankruptcy if they are not responsible with pricing for their new homes and condos.

Many Developers will react by delaying launches until there is more stability in costs, more availability of labour and materials, and a return of consumer confidence in affordability with lower mortgage interest rates.

So, we know that higher prices, a lower volume of sales, and a low supply in the new home and condo market will continue until reduced government spending and reduced inflation permit high interest rates to wain.

The question is: when will interest rates fall?

The US experienced a recession in the first half of 2022. A recession is defined as two consecutive quarters of zero or negative GDP growth. Canada is likely to experience its own recession in early 2023.

We will likely see “stagflation” (high inflation with simultaneous stagnation of growth or outright recession) throughout 2023.

Some Economists predict that interest rates will begin to decline in late 2023 and rest about 1% above the pre-pandemic interest rates.

This may be true or inflation may persist longer.

However, we know that a recession has different impacts on different sectors of the economy.

In 2023, there will be relief to some supply chain issues, like new automobiles and durable goods, and this will help ease inflation. With a surplus of new automobiles and durable goods like appliances available for sale, prices of these products will decrease.

On the other hand, continued high taxes and regulation on energy and fertilizer will continue to cause energy and food prices to soar.

The Real Estate sector can react differently depending on the economic factors of the time.

In the Banking Crisis of Fall 2008 to Fall 2009, we saw both the volume of sales and available inventory decrease, and prices rise in both new and resale Real Estate.

In the 1981 and 1989 recessions, the Real Estate market did not do so well.

The saviour of today’s Real Estate market is immigration.

An imbalance between the supply of zoned land and the massive demand from the number of new Canadians coming to Canada in 2023, estimated at 500,000, will put high upward pressure on prices of new homes and condos.

Higher prices, caused by the imbalance in supply and demand and higher borrowing costs, will knock the bottom 20% of people off the property ladder, all of whom could have afforded to buy homes before the rise in interest rates.

For those who still qualify to climb onto the property ladder, they will not be able to afford to buy the same size new home or condo in the same area as they could have 3 years earlier with the same budget.

This trend has been ongoing for more than a decade and will certainly continue along with Canada’s generous immigration policy.

Successful people see negative economic times as an opportunity.

The solution is to buy a new High-rise condominium from an experienced Developer, with good customer service, in a good location, and a 5-year or more closing date.

New home and condo prices will continue to soar and interest rates will certainly fall over the next 5 years.

The wisest investors will avoid the high interest rates and capitalize on the massive appreciation ahead.

This is the safest way to ride out the storm.

Fortune favours the bold.