Slowing Ontario Market May Produce Mild Hangover For Economy

Written By: Jim Adair

The real estate market in Southern Ontario has enjoyed a decade of growth, taking only a short breather in 2008. But the provincial government changed all that in April when it introduced a 16-point plan to slow down the market. Since then, sales and prices have dropped.

Interest rates have started to rise and the federal government may implement additional measures to make it even more challenging for would-be home buyers to qualify for a mortgage.

What impact will the real estate slowdown have on the economy?

A report by RBC economist Laura Cooper in May says that, "When home sales fell by 30 per cent in 1990, activity generated by new home construction began to decline in the following quarters and subsequently fell by just over 30 per cent. This shaved nearly 10 billion off the economy with the home-building share of GDP falling from four per cent to just over two per cent by mid-1991."

Cooper says in the current market, "the direct >A report by DBRS says that housing booms in British Columbia and Ontario "have spilled over into the local job markets, with employment in housing->But the report says "the extent of labour misallocation does not appear acute, particularly when compared to some U.S. states during the U.S. housing boom. In the context of solid economic growth and steady population gains, the labour markets in both provinces are likely able to absorb a potential home-price correction without major disruption."

In B.C., the provincial government introduced a foreign buyers tax in the Vancouver area in August 2016. It slowed the roaring market, with sales and prices dropping to the end of the year. Since then, the market has picked up and by this summer, average prices were above last years levels.

Most analysts believe that Toronto-area sales and prices will soon rebound as well.

"Population increases and economic growth create a healthy demand for housing and thereby boost the number of jobs in housing->"Population growth combined with a robust economic expansion has contributed to strong job growth across economic sectors."

The report defines housing->"Housing->During the last three years as housing prices rose sharply in the two provinces, the pace of housing->The RBC report says that other non-housing sectors would also be impacted by a housing downturn.

"Rising housing wealth amongst households likely contributed to the record levels of car sales in Canada and an insatiable appetite for renovations in the recent housing upswing," says RBCs Cooper. "Vehicle purchases, eating out at restaurants and spending on recreation, cultural events and financial services all have a tendency to slow somewhat against a backdrop of declining home sales, but tends to occur over a period of six to nine months following the beginning signs of a housing downturn."

Cooper says that "tallying up the contributions of everything from the building of new homes to the costs of maintaining and running a home, housing->"We dont expect a downturn similar to that recorded in the early 1990s or even in the United States leading up to the financial crisis," says Cooper. "But after Canadas years-long housing-market party, a mild hangover is likely to follow, with important implications for Canadas economy."



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