Reasons for the big-three boom

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Most Canadian markets are stagnating but three, in particular, are booming and one major economist has laid out five reasons for this “puzzling” trend.

In his housing report, “Canada’s Housing Boom: And then there were Three,” Sal Guatieri, senior economist for BMO, lays out five explanations for why Toronto, Calgary and Vancouver – Canada’s hottest markets – have enjoyed such significant gains.

“First, the Hot-3 all have rapidly growing populations, led by Calgary’s stellar 4.1 per cent y/y clip,” Guatieri writes. “Even relative laggard Toronto is growing faster than the rest of the country (1.8 per cent vs 1.0 per cent) and the second largest city, Montreal (1.2 per cent).”

The combined population of Vancouver, Calgary and Toronto has risen twice as fast as the rest of the country in the past decade, recording 23 per cent population growth compared to 11 per cent.

“Second, young people are driving demand in the Hot-3, especially condos,” Guatieri writes. “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 third reason, according to Guatieri, is the solid job markets in each of these three cities. All three are set to enjoy more growth, year-over-year than any other cities in the country.

“Fourth, cheap financing matters more in cities with poor affordability,” Guatieri writes. “The typical family would need to spend 62 per cent of gross income on mortgage payments to buy a Vancouver bungalow, and this jumps to 75 per cent if rates rise two points.”

The final contributing growth factor – especially in Vancouver and Toronto – is foreign investment.

“Many new residents and foreign investors pay cash, and some of the more affluent investors don’t even bother leasing their units,” he writes. “They are motivated by wealth diversification—and Canada ranks high on the list of countries that are politically stable. Vancouver continues to be a favoured destination of Asian immigrants.”

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