Photo: James Bombales

Ahead of the seasonal buying rush, BMO has released its annual spring housing affordability report. One factor the bank believes will be pushing prices higher in the next few months? Millennial homebuyers.

“The perennially hot markets of Toronto and Vancouver are largely driven by the impact of millennial home buyers creating price increases in the condo and townhouse markets,” reads the report.

And according to BMO senior economist Sal Guatieri, Toronto and Vancouver aren’t the only markets that could see price jumps as a result of Millennial demand.

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“We expect millennials to bolster other markets like Montreal and Ottawa, as those looking for better affordability consider options beyond Toronto and Vancouver,” he writes in the report.

The good news for Millennial buyers is that the Canadian housing market is much more affordable than it was this time last year. National home prices dropped in January and February, as the market continued to adjust to a new mortgage stress test.

However, rising interest rates could put a strain on affordability for many home buyers. The Bank of Canada raised the overnight rate to 1.25 per cent in January, and another hike is expected later this year.

“It is likely we will see interest rates go up another 50 basis points this calendar year,” writes Guatieri. “Even these moderate increases start to erode affordability for markets that haven’t been much affected by tougher mortgage rules and other cooling measures.”

Other factors driving prices up, and affordability down? Guatieri cites record low unemployment, and rapid population growth as two major contributors.

Overall, the picture appears bright for homebuyers looking to make a purchase this spring.

“This year will mark similar, though not as extreme, activity for the housing market,” reads the report. “There will be slower home price growth compared to last year, and a moderate decline in the level of home sales.”

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