Moderate House Price Appreciation in Montreal tied to Demographic Make-up

By Dominic St-Pierre, Senior Director, Royal LePage, Quebec region

This blog articles is the first of a new series on Quebec market.

dominic4351_8x12Montreal is world renowned as a unique city, rated as a category in its own right for its beauty, culture and character. And yet, upon taking a closer look at the demographics, its appeal is not as powerful as that of some other major Canadian cities.

One must distill the data to understand the effects on real estate. Like the province of Quebec, Montreal’s population is aging ahead of the rest of the country and seems to have an ongoing problem with retaining younger households. While I am optimistic about the city’s housing market, the region may never see the kind of dizzying increase in prices that we have come to take for granted in other Canadian cities.

So when is Montreal going to take off?

Montreal is beautiful and sophisticated, with relatively affordable housing and a strong economy. However, as our quarterly House Price Survey continues to demonstrate, home prices across the Greater Montreal Area are not rising at a rate anywhere near the levels seen in Toronto or Vancouver, or even some of Canada’s smaller city centres for that matter. For the third quarter of 2016, the Royal LePage National House Price Composite showed that the aggregate home price in Canada climbed by 12.6 per cent year-over-year, while in Greater Montreal it grew by 4.9 per cent. While this is quite healthy, and parallels our expected historical average of 5 per cent growth annually, the figure does not compare to the 30.6 and 13.6 per cent growth experienced during the third quarter in the Greater Vancouver and Greater Toronto Areas, respectively.

One only need to look at the below graph which illustrates the price variation between Montreal, Vancouver and Toronto to understand how the gap has widened over the last few years.

capture-decran-2016-11-29-a-10-39-28

*Data provided by Brookfield Residential Property Services. Aggregate prices are calculated via a weighted average of the median values of the three  main property types for each region.

The thing is, when it comes to the growing population of homebuyers, Montreal is quite different.

The picture becomes clearer when you look at the number of Millennials in Montreal, which is the group that we traditionally look at as being first-time homebuyers. As of 2015 (the latest data that is available from Statistics Canada), those aged 20 to 34 comprised 21.4 per cent of the population in Montreal, as compared to 22.1 per cent in Toronto and 22.5 per cent in Vancouver. Montreal also had a smaller proportion of residents in their 40s and 50s as compared to the other cities, with a larger population aged over 65. There is just not the same Millennial demand that we see in other cities, which impacts the buoyancy of the real estate market.

These challenges can largely be explained by the population flowing in and out of the city. Over the five-year period ended in 2014/15, Montreal lost 27,405 people to other parts of Quebec, and 39,358 to other provinces, for a total of 66,763. That trend was mirrored in Toronto and Vancouver as well, partly because people were moving to the outskirts of census metropolitan areas, and because Alberta’s oil boom attracted young adults in large numbers. What is different in Montreal is that immigration did not provide as much of an offset to as it did for other parts of the country. Net immigration (immigrants less emigrants) in Montreal was just 109,503 over the five-year period, or about 4.5 per cent of its 2015 population. In contrast, that figure was 5.2 per cent in Toronto and 7.3 per cent in Vancouver.

As such, for the Montreal housing market to reach comparable dynamic growth, relatively speaking, we need to develop provincial strategies and policies attracting greater currents of young immigrants and, by the same token, develop retention strategies for families contemplating to leave the island. There’s no question, enhancing Greater Montreal’s immigration/migration initiatives would do well for the region’s economy and real estate.

Let’s not forget some of the benefits of being residents of Montreal and Quebec. Unlike the most active markets across the country that fluctuate dramatically year-over-year and from quarter to quarter, Montreal is affordable and sheltered from substantial fluctuations, all the while experiencing moderate increases and some recovery over recent quarters. Furthermore, the difference of salaries between Montreal and other major Canadian cities is not as pronounced as we tend to think, which means that living here may offer a greater quality of life.

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