Just when the U.S. home-price boom is abating, Canada's housing market is accelerating to a potentially dangerous level, a senior investment bank economist warns.
"Bubble-like activity" is concentrated in the West, Douglas Porter of BMO Nesbitt Burns wrote in a report, but "that doesn't make it any less real."
He said the American real estate surge is drawing to a close after sales peaked last summer, "but just as U.S. housing is finally cooling down, there are signs that the Canadian housing market is actually heating up, potentially dangerously so."
Canadian price increases have surged ahead of U.S. trends, Porter writes, because Canadian interest rates are lower and because the boom took longer to get rolling in Canada, while Canadian employment growth has more than doubled the U.S. pace.
"To those in Central Canada, it may seem passing strange to talk about a housing boom, since conditions in Ontario and Quebec are far from frothy," Porter noted.
"But just because bubble-like activity is concentrated in only some regions - pretty much anything west of Lake Superior - doesn't make it any less real. The much-ballyhooed U.S. bubble was largely relegated to the coasts and sunspots."
Almost every major city in Western Canada has posted double-digit percentage increases in home prices so far this year, "led by a jaw-dropping 28.9-per-cent spike in Calgary," Porter said.
"Vancouver is not far behind at 21.7 per cent, and average prices there have pushed above the $500,000 barrier."
Conditions have "become even more torrid in recent months," and residential construction's share of the total economy is approaching the level at the past two major cycle peaks, in the early 1970s and the late 1980s.
