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Blog by Mario Felicella - Sutton Group Westcoast Realty

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Canadian housing boom is over - except in the Hot 3 cities

While housing markets across the country have largely simmered down, that's not so in Calgary, Toronto and Vancouver where prices are rising sharply, according to a new report from BMO Economics.

The report shows that strong demand and lean listings in the 'Hot-3' markets have sent prices soaring, while most other regions have cooled. Prices are flat in Montreal and Ottawa, and falling in Saguenay and Saint John. A few western cities have also caught a chill, including Regina (where prices have dropped -2.4 per cent year-over-year) and Victoria (-9 per cent since 2010).

According to Sal Guatieri, Senior Economist, BMO Capital Markets, reasons behind the nationwide cool-down are clear.

"The housing boom that began early last decade effectively ended with the 2008 recession and several turns of the mortgage-access screws," noted Mr. Guatieri. "Despite reasonable valuations, most regions won't regain their former pep, as interest rates are likely to climb next year."

However, more puzzling are the rapid price gains in Calgary and Toronto, and the quick recovery in Vancouver. The report notes five factors driving activity in the three cities:

  • Strong population growth: The combined population of the Hot-3 has risen twice as fast as other regions for the past decade – a cumulative 23 per cent vs 11 per cent

  • The youth movement: When baby boomers flocked to Toronto in the late 1980s, sales and prices bolted skyward. Today, their older children are one of the fastest growing age groups. The prime home-buying cohort of 30-to-39 year olds is outpacing the general population (1.8 per cent vs 1.1 per cent)

  • Solid job growth is a mainstay: While Calgary's blistering pace has moderated due to lower energy prices, it's still running faster than 2 per cent y/y, and Vancouver's rate has sped up to above 3 per cent. Toronto's employment weakened recently, but only after growing 2 per cent in the spring and 4 per cent last year. Elsewhere, job growth is running at a more pedestrian 1.1 per cent pace.

  • Record low mortgage rates: The typical family in Vancouver would need to spend a whopping 62 per cent of income on mortgage payments to buy a bungalow, and this jumps to 75 per cent if rates were 2 percentage points higher. In Toronto, it would take 42 per cent of income currently, moving up to 50 per cent if rates were to rise 2 percentage points. While Calgary is still affordable, with mortgage costs on a benchmark home requiring 23 per cent of income, this won't last if prices continue to leapfrog income.

  • Foreign wealth: Anecdotes from builders and realtors suggest foreign wealth is a significant factor in a number of high-end neighborhoods in Vancouver and, to a lesser extent, Toronto.


Source: BMO Financial Group