MNI DATA IMPACT: Montreal Home Prices Surge, Vancouver Slumps

By Greg Quinn

     OTTAWA (MNI) - Montreal new home prices jumped the most since 2005 while

Vancouver slumped, closing out a year where policy makers held the G7's highest

interest rate and introduced new rules to curb risky mortgage lending.

     Montreal prices rose 6.3% in November from a year earlier and in Ottawa

they rose 6.9% for the biggest such gains in each city since 2005, Statistics

Canada said Friday. Vancouver prices fell 2.8%, the most since 2009 during

Canada's last recession.

     Montreal and Ottawa have posted the biggest gains for five straight months

on elevated construction costs. Those cities face less pressure on land costs

than Vancouver and Toronto, where prices were surging until 2018 with the

introduction of local taxes on foreign buyers and vacant units. 

     The gains suggest the era of low interest rates is starting to spread

bidding wars for property beyond Vancouver and Toronto where regulators were

most concerned about a correction. Montreal and Ottawa increases are triple the

pace of Canada's economic growth and inflation this year.

     Diverging prices show the difficulty of tackling what the Bank of Canada

calls the biggest domestic vulnerability -- record household debt burdens as

families struggle to buy a home. The federal government is also doing some

reassessment, reviewing whether to relax a mortgage stress test introduced in

2018 to cool the market.

     Governor Stephen Poloz held a 1.75% policy rate this year as the Fed cut

three times, saying the risk of damage from a global trade war must be weighed

against signs that consumers are returning to riskier borrowing. Canada's bank

regulator also recently increased the capital buffer that major banks must hold,

citing risks in consumer finances. 

     Regional divergence in prices is masked by the national figures, with the

new home price index down 0.1% in November from a year ago.

     The gains in Montreal and Ottawa come as some investors question whether

the policies to cool Toronto and Vancouver simply moved demand from foreign

buyers to other cities. 

     Still, there are signs that gains in housing are underpinned by healthy

demand. Unemployment was at record lows earlier this year, mortgage rates have

tumbled along with global bond yields, and Canada's population is growing at the

fastest pace in decades. 

     Strong gains in housing tracked in the new home price index don't yet cover

what had been the hottest part of the boom, condos in downtown areas. The new

home price index covers single-family homes and some semi-detached properties

like row houses, and has just started publishing a quarterly index that includes

condos. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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