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The Bank of Montreal anticipates “some correction” in Toronto and Vancouver’s hot housing markets when interest rates eventually rise, but not in just-as-fiery Calgary.

While the housing markets in other regions in the country — including Atlantic Canada and Quebec — have steadied or weakened this year, sales in Vancouver, Toronto and Calgary are well above 2013 levels.

In a North American economic outlook published Thursday, BMO senior economist Sal Guatieri said higher interest rates will cool those cities’ “red-hot” markets, although he only called for a correction in Toronto and Vancouver.

“Prices have accelerated faster than family income, further straining affordability,” Guatieri wrote. “Consequently, some correction is anticipated in Toronto and Vancouver when interest rates eventually rise.”

Guatieri told The Globe and Mail that he doesn’t expect correction in Calgary because of a combination of its fast-growing population, stronger economy and more affordable prices.

But if interest rates rose two percentage points in the next three years, for example, the price of a Toronto bungalow would need to drop 11 per cent to keep mortgage servicing fees at current levels for the typical buyer.

“While supportive demographics and an influx of foreign wealth should cushion the blow, it’s difficult to see prices staying at current lofty levels if interest rates don’t stay at current crisis levels,” Guatieri said.

Follow Kat Sieniuc on Twitter: @katsieniuc

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