With every report of continued strength in the remarkably stubborn Canadian housing market (and we have had more such indications this week), the question gets asked: How can Canada's housing sector possibly keep this up?
National Bank Financial believes it has one compelling answer: Immigration.
In a report issued Thursday, NBF senior economist Matthieu Arseneau argued that Canada's unusually high level of net migration in the 20-44 age group is underpinning a high rate of formation of new households in the country, and that has been driving housing demand. He noted that in 2012, Canada's overall population growth in that age group was 1.1 per cent, compared with a decline of 0.3 per cent in the rest of the developed world. And that growth was entirely driven by immigration; without the influx of new Canadians, Canada's population in this critical household-forming age group would have shrunk last year.
"There is reason to believe that the resilience of Canadian employment in the recent economic downturn has made Canada a destination of choice for foreigners looking for work," Mr. Arseneau wrote. "In 2012, the country's employment rate for residents born abroad was among the highest of the advanced economies."
He argued that the pace of household formation is the key difference between Canada's current strong housing market, and the housing bubble that eventually blew up in the United States last decade.
"As the U.S. housing bubble formed in the years from 2001 to 2006, households were formed in Canada at three times the U.S. rate. Over the next five years, the Canadian rate was twice that of the United States," he said.
"Though the growth of the 20-44 age group is set to decelerate over the next five years, it is likely to remain positive and well above the trend line of other advanced economies. We expect that this phenomenon will cushion the effect of rising mortgage rates on the Canadian housing market," he concluded.