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The hottest local housing markets in Ontario and BC have been a shot in the arm for the provinces’ respective economies.
Soon, they could be more of a drag, says a new report from TD Bank.
“With activity expected to moderate over the next [one to two] years, this recent source of growth advantage is likely to transform into one of disadvantage,” reads the latest Provincial Economic Forecast from the bank, one of Canada’s largest.
BC is already headed in this direction, according to TD, which draws attention to plummeting home sales in Vancouver of late.
In August, Metro Vancouver resale activity fell about 18 per cent compared to the previous year, marking the first year-over-year decline in more than three years.
The cooling, largely the result of the provincial government’s 15-per-cent tax on foreign buyers in the area, implemented early that month, could spook domestic buyers as well, TD says.
TD expects the levy to quell home sales in Vancouver until 2017 at least.
For Ontario, TD says there’s room to grow — for now — but that worsening affordability will begin to take its toll and “the current pace of sales and price growth is unsustainable.”
“As such, the market is ripe to cool by the second half of next year,” says TD.
And although TD expects Ontario homebuilding activity this year to track 9 per cent over the year prior, it’s calling for a sharp decline in the next two years, another downward force on the province’s economy.
Same goes for BC, TD predicts, calling for starts to decline by double digits in 2017 and 2018.
“While new home construction [in BC] is up by about 40 per cent so far this year — a welcome development given the limited supply — the pace is unsustainable,” the bank says.
Without housing markets to rely on as growth drivers for their economies, the provinces will turn to different sectors, namely manufacturing and exports.
“Manufacturing and exports should provide some support, in line with economic activity south of the border,” says the report, noting there are potential headwinds.
These include the planned closing of Oshawa’s General Motors auto plant and the end of the Canada-US Softwood Lumber Agreement, which expired in October. BC’s lumber industry may suffer due to tariffs if Canada and the US can’t strike a new deal.
“While the manufacturing sector as a whole should be supportive of growth in the coming years, the strength won’t be sufficient to completely counteract waning activity in the housing market,” adds TD.