By Tom Bradley

In its weekly letter, the economics team at BMO published an interesting piece on residential real estate – Canada’s Housing Boom: And Then There Were Three.

Senior Economist Sal Guatieri points out that the housing market is being carried by the ‘Hot-3’ – Calgary, Toronto and Vancouver. Year over year prices in these markets are up 9.8%, 7.8% and 5.0% respectively, while the rest of the country has slowed down. For example, Montreal and Ottawa are flat over the same period and Regina is down 2.4%.

The report provides some background as to why the “bifurcation” is occurring:

• The Hot-3 have better population growth.
  
• They have a larger percentage of their populations in the prime home-buying demographic (30-39 years of age). In general, this cohort has been growing faster than the overall population (read: strong condo demand).
  
• Cheap financing, which is readily available, is more important in the Hot-3 because these markets are less affordable.

These factors explain why Calgary, Toronto and Vancouver have stayed hot, but don’t guarantee the trend will continue. Some of the forces will stay positive (immigration), but as Mr. Guatieri points out, the growth in the 30-to-39 group is starting to slow down and mortgage rates are expected to rise.

For a more sobering view of the Canadian housing market, I encourage you to read a blog we posted in July entitled Canadian Real Estate – A Crack in the Tree.