Sean's Market insight Volume 7
Sean Zahedi
Executive Sales & Marketing Strategist - New Developments/ Philanthropist / Columnist/ Speaker
In the second quarter of 2024, GDP growth was reported at 2.1%, up from a revised 1.8% in the first quarter. This growth was better than expected, but the details are weaker than the figure suggests.
Government spending was a major driver, contributing 80% to the GDP increase. However, when adjusted for rapid population growth, output per person continued to decline for the fifth consecutive quarter (and seventh out of the last eight).
Consumer spending grew by 0.6%, with spending on services rising by 1.8%, though this was slower than the previous quarter. Spending on goods fell by 1%. Residential investment dropped significantly by 7.3% due to weaker home sales. Business investment rose by 11%, but this was partly due to a temporary spike in imports of aircraft and transportation equipment.
Monthly data shows that April had the strongest growth (+0.4%), followed by a smaller increase in May (+0.1%) and no change in June. Preliminary data for July suggests growth remained unchanged, indicating a loss of momentum toward the end of Q2.
Household incomes increased by 7%, and the savings rate went up to 7.2%. However, these savings are likely concentrated among higher-income households and might not lead to increased spending soon.
In summary, while GDP growth was slightly better than expected, the underlying details are weaker, with output per person still declining. Employment has fallen for two months, and the unemployment rate is up nearly 1% from a year ago. Inflation pressures have eased, and with a softening economy, the Bank of Canada is expected to cut the overnight rate by another 25 basis points in September.?
Experts warn that Toronto is heading towards a severe housing shortage in the next few years, despite the current oversupply of condo listings.
Construction starts are currently under 10,000 for this year, while the city needs about 30,000 to 40,000 new units annually to keep up with population growth. In 2027, only about 23,900 condos and rental units are expected to be completed in the Greater Toronto and Hamilton area, which is 10,000 fewer than in 2024. This downward trend is expected to continue into 2025.
The impact of population growth in Ontario cannot be overstated. Over the past three years, the province has seen a decade’s worth of growth, adding 1.2 million people. In just the first six months of this year, Ontario’s population increased by nearly 200,000.
This level of growth could be managed if we were building enough homes, schools, and infrastructure, but we are falling short. During this period of population increase, there were only 37,245 housing starts, a decrease of over 6,000 compared to the first half of 2023. In contrast, housing starts across the rest of Canada have risen by more than 14,000 year-over-year. Most new units in Ontario are apartments, primarily one-bedroom or studio apartments, although exact figures are not available as the data collection ended in 2022.
The numbers reveal a stark reality: while the population grew by nearly 200,000, we started fewer than 38,000 homes, mostly small apartments. This mismatch means Ontario is adding roughly three to four people for every new bedroom built, leading to historically low vacancy rates, skyrocketing rents, and severe overcrowding.?
Addressing this issue requires tackling both the slow pace of homebuilding and the rapid population growth. Factors like high global interest rates are beyond our control, though other provinces like Alberta and Nova Scotia have managed to increase building despite these rates. Recent rate cuts by the Bank of Canada should offer some relief. British Columbia, facing similar challenges, has slowed its decline in housing starts through aggressive zoning reforms.
While housing starts are up in other parts of Canada, Ontario lags behind, signaling the need for more action from the provincial government. The province has set a goal of starting 125,000 homes this year, but after six months, we’ve only achieved 37,245 starts, less than 30% of the target. The Housing Affordability Task Force report released in February 2022 outlined a plan to address the crisis, but over two years later, only 28 of 74 recommendations have been implemented. Additionally, rising development charges imposed by municipalities are increasing costs for new renters and homebuyers, causing some projects to be delayed or canceled.
On the federal side, there’s a commitment to reduce the number of non-permanent residents (NPRs), such as international students and temporary workers, aiming to lower their proportion to under 5% of Canada’s population over the next three years. If successful, this could relieve some pressure on rents and improve the experience for students. However, the Bank of Canada has raised concerns about whether the federal government will meet these targets, suggesting that it may take longer than planned. A credible plan is needed to prevent Ontario’s population from growing faster than the housing supply.
Ontario’s housing crisis can be resolved with the right solutions for both supply and demand, many of which are already in the works. It’s time for these commitments to be fully realized.
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New home sales in the Greater Toronto Area (GTA) fell to an "all-time low" in July, with only 654 transactions reported, according to data from the Building Industry and Land Development (BILD) released on August 28th.?
This figure represents a 48% drop from the same month last year and a 51% decline from June's 1,339 sales. July's transactions were also 70% below the 10-year average. As previously reported, May saw the second lowest number of new home sales on record since BILD began tracking data in 1990, with 936 sales. July 2024 now holds the unfortunate record for the lowest sales.
New home inventory in the GTA remains high, with BILD describing the situation as "unhealthy" for several months. Inventory, which includes 17,445 condo units and 4,215 single-family homes, increased to 21,660 units in July. This rise pushed the combined inventory level from 14.5 months to 15 months. BILD emphasizes that this is considered a high level of inventory.
Housing affordability is a significant worry for Greater Toronto Area residents, with more than 90% of people acknowledging the problem, according to an Ipsos survey conducted for BILD. The federal GST/HST New Housing Rebate has been a traditional method to help new home buyers, but it has become outdated.
If the federal government wants to effectively address the housing affordability crisis, updating this rebate program would be a straightforward way to make a meaningful difference for new home buyers.
Currently, taxes and fees from all levels of government account for 25% of the cost of an average home in the Greater Toronto Area (GTA), with a significant portion coming from HST. Ideally, the federal HST rebate program should help offset this burden, but most homebuyers see no benefit due to outdated eligibility thresholds.
The rebate program, set up in 1991, offers full rebates for homes priced below $350,000, a reduced rebate for homes between $350,000 and $450,000, and no rebate for homes above $450,000. Given that average home prices in the GTA have exceeded these thresholds for over a decade—now averaging over a million dollars for single-detached homes—few, if any, homebuyers qualify for the rebate.
When the GST was introduced in 1991, the federal government promised to adjust these thresholds every two years to keep up with market changes and maintain housing affordability. However, no adjustments have been made in the past three decades, despite a 270% increase in housing prices from 1990 to 2023. Consequently, the federal HST payments on an average new home have surged from $8,832 to $51,152, a 479% increase.
This outdated rebate program has resulted in billions of extra dollars for the federal government while providing little relief to homebuyers. In Ontario alone, it is estimated that the unadjusted rebate thresholds have generated nearly $4 billion in additional HST revenue for Ottawa, with $2.75 billion of that amount collected in the past decade.
Updating the federal GST/HST New Housing Rebate is a straightforward and effective way to support new home buyers across the country. It’s time for the federal government to fulfill its promise to review and adjust these thresholds, ensuring they reflect current housing market conditions.
Statistics Canada’s July consumer price index revealed a notable slowdown in inflation, easing to 2.5%, the lowest rate since March 2021. Economists view this drop as likely leading to a 25-basis point cut by the Bank of Canada in September, with expectations for additional cuts later in the year. Core inflation might be lower than the Bank's forecasts, increasing the chance of a larger rate cut later. The focus has shifted to the overall economic health, giving the central bank more leeway to cut rates in 2024. With inflation risks diminishing, attention is now on economic weaknesses, including slowed consumer spending and a weakening job market.
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The housing market trends you’ve shared are quite eye-opening and highlight the critical need for innovative solutions. ?? Sean Zahedi
With over 30 years experience leading sales teams in the new home industry representing both small and large developers to success throughout Ontario
2 个月One of the smartest people in our industry. Thanks for your insights Sean Zahedi