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How real estate will impact Ontario’s economy this year (and in 2018)

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Photo: abdallahh/Flickr

It’s not just real estate agents who are set to capitalize on elevated resale activity in Ontario this year, suggests TD Economics.

TD Bank’s economics branch expects soaring Ontario housing markets to bolster everything from retail industry to government coffers through 2017, giving a short-term shot in the arm to the province’s economy.

“Previous and still-forthcoming home price gains should translate into a hearty pace of consumer spending this year, via spillover into service sector industries,” writes TD Economics in its Provincial Economic Forecast.

Michael Dolega, director and senior economist with TD Economics, tells BuzzBuzzNews these service sector industries include insurance, finance and, of course, real estate.

“As home prices and housing activity accelerate, so to do these industries. At the same time, you typically have associative purchases with housing activity,” says Dolega.

This could include furniture or appliance purchases, which will support retail and wholesale businesses working in those industries, he explains.

TD Economics anticipates Ontario’s real GDP to grow by a “robust” 2.6 per cent in 2017 before growth starts to slow down the following year.

“Moreover, the housing boom has resulted in higher government revenues, with the province on track for a balanced budget in the upcoming 2017-18 fiscal year,” the Provincial Economic Forecast reads.

Government gains come from channels such as the additional income tax realtors are charged when their earnings rise as well as the provincial land transfer tax tacked on residential transactions. Municipalities may also collect development charges from builders starting new housing projects.

While various levels of government and numerous industries are forecast to reap the rewards in 2017, TD Economics predicts Ontario’s economic growth will cool in 2018 as housing activity pulls back.

Ontario’s real GDP is expected to grow (on a year-over-year basis) by a milder rate just shy of 2 per cent in 2018 as annual home-price growth winds down to the single digits, a drop from the searing annual appreciation in excess of 20 per cent this year.

“We do expect the Ontario housing market to slow down as far as price appreciation, but ultimately activity should still be relatively supported,” Dolega states.

The Provincial Economic Forecast attributes the projected cooling in the housing market to “further deterioration in affordability and a steeper rise in longer-term market interest rates.”

However, Dolega says TD Economics is calling for “a cool off rather than a crash.”

 

 

 Mar 30, 2017

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