Tag Archives: Ontario economy
Ontario housing conditions will stabilize
Exchange Magazine
Stable economic conditions across the province will help stabilize housing demand in 2010 according to the 2009 Third Quarter CMHC Housing Market Outlook – Canada Edition released today.
Highlights of the Ontario forecast include:
The Ontario economy will stabilize at year end before gradually recovering in 2010.
Ontario real estate sales will stabilize and range between 160,000 and 190,000 unit sales this year and next – reaching 174,0001 units in 2009, and 166,750 units in 2010.
Resale volumes will be down from the peak in 2007 but will be in line with volumes earlier this decade.
After experiencing buyers market conditions early this year, balanced market conditions will be sustained through 2010 – real estate prices will rise by 1.6% in 2009 and 0.8% in 2010.
Comment: Toronto is in the throes of a serious sellers market, though. With record sales volumes in June, July and August, and inventory levels falling to 38% in August – there are just fewer and fewer homes to buy. This is creating bidding wars (1 in 6 sales in Toronto in August were multiple offers) and pushing prices upwards.
After declining in 2009, new home starts will edge up and reach 50,000 units in 2010 but owing to economic uncertainty will range between 45,800 and 60,000.
High levels of affordability will support demand for detached housing in the immediate term but a shift to more inexpensive multi-family housing will occur as affordability erodes in late 2010.
Hamilton, Thunder Bay, Ottawa and Kitchener new home markets will enjoy greater growth prospects as these centers represent the tightest Ontario resale markets.
“A gradually improving provincial economy, improved financial market conditions and high levels of affordability will help stabilize housing activity next year” said Ted Tsiakopoulos, CMHC’s Ontario regional economist. “However, less pent-up demand and cautious consumer spending resulting from modest employment and personal income gains are factors that will temper Ontario‘s housing recovery in 2010,” added Tsiakopoulos.
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Contact the Jeffrey Team for more information - 416−388−1960
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Home is where the tax is
Ontario’s impending tax harmonization scheme spells disaster for those building, buying or selling homes
James McKellar, Financial Post
The recently announced harmonization of the GST and PST in Ontario is about to wreak havoc on the housing industry, one of the pillars of that province’s economy. It is a textbook case of poor government policy that will distort the province’s housing market over the long term, with a particularly devastating impact on the building industry.
Consider the following: When tax harmonization in Ontario takes effect in July, 2010, someone buying a new condo in Toronto costing $500,000 — the current median price in that city — will pay approximately $40,000 in additional taxes. If the same buyer considers moving up to a $600,000 purchase, the tax goes up another $17,000, for a total additional tax burden of close to $60,000. Total sales taxes on a new home purchase will exceed the 13% tax on an imported luxury car and the 15% sin tax levied on a glass of wine or pint of beer purchased at the local watering hole. But will new home purchasers be willing to pay these sky-high sales tax increases and, if not, what are the consequences?
The unintended short-term consequence is the likely delay or even cancellation of some “shovel-ready” housing projects that are in the pre-sale stage. This does not bode well for labour markets and particularly a construction industry that, according to Statistics Canada, is already suffering among the highest job losses of any industry in the country. Why is government intent on spending taxpayer money to create infrastructure jobs and bail out the auto industry, all in the name of job creation, and at the same time charting a course to bring much of the housing industry to its knees?
Hardest hit will be people living in the Greater Toronto Area (GTA). The provincial government indicates that 75% of new home purchases in Ontario fall below the $400,000 threshold. But in the GTA, 54% of new home purchases last year were predominately high-rise condominiums, and in Toronto, where the majority of new condominiums are being built, the average asking price is currently just over $500,000.
For the consumer, there is one way to dodge the tax: Buy on the resale market where PST and GST do not apply. For a $600,000 resale purchase, the tax savings would total $78,000. But the sheer magnitude of the difference in sales tax between new and resale product will distort housing markets in the long run.
How will builders respond to the new tax regime? They will pursue one or more of the following options: Get as much product below $400,000 as possible; use cheaper building materials and finishes; eliminate upgrades and even some standard finishes; eliminate sustainability and “green” features if they cost more; strip down landscaping, exterior finishes and features; and keep units small.
Ontario cities can all but forget the drive for new inner city family housing after July 1, 2010. And the province can forget its sustainability and “green” initiatives as well as its intensification targets when it comes to new higher-density housing. Builders will gravitate to projects that fall below the $400,000 threshold or jump to the luxury end where the sales tax bite will not be a disincentive to would-be buyers.
Ontario’s home builders have delivered quality product at a cost that has ranked for decades among the lowest in the Western world. But if the government refuses to move from its current position, the long-term unintended consequences on the performance and efficiency of our housing markets will be significant and long-lasting.
When it comes to home owners, the real losers in the harmonization scheme are the middle-income households that are upwardly mobile; those contemplating an expanding family; and the elderly who are considering downsizing. For the ageing couple who might consider a new $600,000 condo in lieu of the family home they have occupied for the past 30 years, why pay $94,950 in sales taxes? They will probably opt to stay put. For the household contemplating children and needing an extra bedroom, a resale unit will be a far cheaper option than a new unit.
Bottom line: the harmonized tax regime will curtail new housing supply in key sectors of the new homes market and will redirect demand to the resale market. In the long run, this will put upward pressure on house prices.
Tax harmonization is being sold on the grounds that it will benefit the Ontario economy at large. In the case of housing, it will do the exact opposite. The crippling new tax regime, announced in the midst of what may be the largest economic contraction since the Great Depression, will undermine one of the essential foundations of a strong economy — housing choices at affordable prices.
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Contact the Jeffrey Team for more information - 416-388-1960
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Housing starts to fall slightly in 2008
Housing starts reached 228,343 units in 2007, an increase of 0.4% from 227,395 in 2006, according to Canada Mortgage and Housing Corporation‘s (CMHC) first quarter Housing Market Outlook, Canada Edition report. In 2008, residential construction will decline to about 211,700 units, given higher mortgage carrying costs. Nevertheless, Canada’s real estate market remains strong and 2008 will mark the seventh consecutive year in which housing starts exceed 200,000 units.
“Despite some global financial instability with regards to the U.S. housing market, Canada continues to experience robust employment levels, ongoing income gains and low mortgage rates,” said Bob Dugan, Chief Economist for CMHC. “This has strongly supported Canada’s housing markets. However, housing starts are expected to decrease in 2008 mainly due to recent increases in house prices, which will push mortgage carrying costs higher for home buyers.”
Existing home sales, as measured by the Multiple Listing Service (MLS), are poised to experience a very strong year with about 520,000 units in 2007, a 7.6% increase over 2006. In 2008 the level of MLS sales is expected to fall by 3.9% to 499,650 units, while 2009 will see an additional decrease to 488,300. Growth in the average MLS price has remained high at 10.6% in 2007, mainly because of continued strong price pressures in Canada’s western provinces. However, as most resale markets move toward more balanced conditions, growth in average MLS price is forecast to slow to 5.2% in 2008 and 3.8% in 2009.
The Ontario economy is expected to improve slightly during 2008 and this will help sustain housing demand across the province. New home construction activity will be moderate between now and the end of 2008. Housing starts are expected to move up from 68,123 units in 2007 to 69,150 units in 2008, while a more modest economy in 2009 will push starts down somewhat to 67,150 units. The average MLS price in Ontario will rise by 7.6% in 2007, while 2008 and 2009 should see increases of 6.2% and 2.9%, respectively.
As Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC) draws on over 60 years of experience to help Canadians access a variety of quality, environmentally sustainable, and affordable homes – homes that will continue to create vibrant and healthy communities and cities across the country.
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Contact the Jeffrey Team for more information – 416-388-1960
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