BMO Economics has released a special report on the housing market in Canada's four largest cities: Toronto, Vancouver, Calgary and Montreal, showing that while the overall market has renewed strength, there are underlying differences in valuations and outlooks among the four cities.
According to the report, titled "Canadian Housing Update: Tale of Four Cities," 2013 has provided a series of pleasant surprises. "Far from extending last year's deep sales dive on mortgage-rule turbulence, the market pulled up sharply and is now on an above-normal flight path," said Sal Guatieri, Senior Economist, BMO Capital Markets.
Calgary
BMO Housing Market Scorecard Status: "Sellers" Market
After correcting several years ago, Calgary has regained its title as the strongest major housing market in the country. In the three months to October, home sales have run 23 per cent above year-ago levels - nearly twice the national rate, though preliminary figures suggest some slowing in November. Despite heady price gains, valuations remain reasonable, with prices about four-times median family income and mortgage service costs consuming a manageable 23 per cent of earnings.
Immigrants and young Canadians are flocking to the city, drawn by better job prospects, faster wage growth, and healthier housing affordability than Vancouver and Toronto. Propelled by a steady influx of people and strong energy exports, Alberta is the only provincial economy likely to grow faster than 3 per cent in the next two years. "Strong economic and population growth will encourage an upward trend in Calgary's house prices, though higher borrowing costs will moderate the gains," stated Mr. Guatieri.
Toronto
BMO Housing Market Scorecard Status: "Balanced" Market
In Canada's largest housing market, sales are up 20 per cent year over year in the three months to October, and stand 9 per cent above past decade norms. While sales slowed somewhat in November, benchmark prices have picked up to an above 4 per cent pace and are over six-times median family income. After plunging last year, new condo sales have firmed, but remain well below the past decade norm. Condos are an affordable alternative to the detached market for more than 80,000 international immigrants moving to the region each year and the growing number of young people leaving their parents' basement.
For the most part, markets are balanced, but sellers rule and bidding wars prevail in some areas where listings are scarce. "The looming supply of condos, high valuations of detached homes, elevated levels of household debt and moderately higher interest rates should slow overall price increases in 2014," noted Mr. Guatieri. "We expect Toronto house prices to stabilize in 2014, and to remain at risk of declining moderately when interest rates normalize."
Vancouver
BMO Housing Market Scorecard Status: "Balanced" Market
Buyers held the upper-hand last year, but the pendulum has swung toward balance. At the lowest point, sales were down 33 per cent year over year, but have since pole vaulted 50 per cent to near-normal levels. New home inventories are only moderately above long-term norms. Affordability is still a challenge, with benchmark prices topping eight-times family income. For young buyers, condos will remain an affordable option, as prices have fallen slightly in the past year and are little changed from six years ago.
"After keeling over in the face of tougher mortgage rules and the temporary suspension of the Immigrant Investor Program last year, the canary in Canada's home mine has sprung back to life," stated Mr. Guatieri. "But we continue to expect Vancouver's detached house prices to decline moderately in the medium term, and condo prices to remain flat in 2014."
Montreal
BMO Housing Market Scorecard Status: "Buyers" Market
While sales are still below past-decade norms, Montreal's housing market has also improved. Sales have risen 2 per cent in the past year, with support from decent affordability and job growth countering middling population gains. An upswing in new listings has kept buyers in the driver's seat, unlike the other major cities. Despite appreciating 155 per cent since 2001, affordability remains healthy. Benchmark prices run at four-times family income.
"Like Calgary, Montreal should remain affordable even when rates normalize, with house prices holding steady in 2014," said Mr. Guatieri. "With fewer detached homes built, condo construction flourished in recent years, leaving the city with a moderate overhang of vacant units. While condo sales have picked up recently, they remain soft, as investors are wary of a higher condo rental vacancy rate."
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