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File photo of a number of houses for sale in Calgary in August, 2010.

chris bolin The Globe and Mail

Alberta's housing market, led by Calgary, is poised for a boom, Bank of Montreal economist Robert Kavcic says in a report to be released Friday afternoon.

The province's housing market is quickly heating up again, fuelled by a stronger economy. Barring a sudden drop in oil markets, home prices and construction in Alberta will continue to climb in the year ahead, he says.

That, he adds, will likely send the province's housing market down a different path than most of the country.

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But he says that the strong pace of growth is not likely to cause Alberta's housing market to reach the frenzied state it did back in 2006 and 2007. And he concludes that, "for policy makers, this is clearly a case of superior economic and demographic fundamentals at work, not a bubble rearing its head."

The backdrop is the provincial economy, which Mr. Kavcic notes has bucked the national trend towards stagnation by showing improving momentum over the past year.

"Our 2014 real GDP growth forecast pegs Alberta [at] a hefty 1.2 percentage points above the national average," he writes. "Also, employment growth is running at a firm 3.8 per cent year-over-year clip, versus next to no growth on balance in the rest of the country, while retail sales growth is more than twice the nearest competitor. What was traditionally a 'West versus the Rest' comparison has now morphed into 'Alberta versus the Rest.'"

The healthy economy is attracting new people: Alberta's population growth has surged to 3.5 per cent year-over-year, the fastest pace in more than three decades and "every province in Canada is now seeing a net outflow of migrants to Alberta," Mr. Kavcic writes. While most of the job growth is in the resource sector, that's also lifting other fields from construction to hospitality.

"The result of these favourable economic and demographic fundamentals is that Alberta's housing market has abruptly tightened, and could well be decoupling from the rest of Canada," he writes. "Benchmark prices in Calgary are up a strong 9 per cent year-over-year and recently topped levels seen at the height of the prerecession energy boom – Edmonton is within a hair of peak levels as well."

Calgary's sales-to-new listings ratio is now "miles above the national average" but "we're a long way away from the extreme conditions seen in 2006/07, when almost all new listings were being immediately absorbed, and it's unlikely that the market is destined to revisit those conditions," the report says. And "despite the strong rebound in prices, various valuation metrics check in near 10-year averages and comfortably below levels seen during the 2006/07 frenzy."

"Interestingly, despite far superior demographic, economic and supply fundamentals, valuations also fall comfortably below the national average with affordability better than in Vancouver and Toronto, and on par with Montreal," he writes. "From this perspective, there appears to be room for prices to run higher still."

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