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Based on a leading indicator for where home prices are headed, an economic-research firm is predicting a booming year for one of Canada’s largest housing markets.

Capital Economics suggests Montreal home prices appear on pace to surge by 10 percent this year on the heels of a 4.4-percent annual increase recorded this past December, as recorded in the Teranet-National Bank House Price Index.

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This is based on a reading of the sales-to-new listings ratio. Sales-to-new listings ratios between 40 and 60 percent typically indicate a balanced market, with ratios below that range favouring buyers and ratios above it benefitting sellers.

Chart: Quebec Federation of Real Estate Boards

The ratio, expressed as a percentage, is calculated by dividing the number of sales in a given month by the number of listings that appeared on the market during that same period. A ratio of 100 percent suggests homes are being sold almost as fast as they are listed.

On a year-over-year basis, active listings in Greater Montreal sunk by 18 percent this December, and the number of newly listed homes was down by 4 percent compared to the same month in 2017.

Montreal is somewhat of an anomaly among mid- and large-sized housing markets across the country.

For example, looking at the sales-to-new listings ratio for Vancouver, price declines of 5 percent can be expected in 2019, Capital Economics says. Vancouver’s sales-to-new listings ratio peaked at around 90 percent in 2016 and has since plummeted to the mid-30-percent range.

Chart: Capital Economics

“New supply is likely to weigh further on prices in Vancouver. At current absorption rates, the supply of unsold new units looks set to rise to a record high,” Stephen Brown, a senior economist with Capital Economics, writes in a Canada Data Response.

Capital Economics has been known for bearish forecasts, often contradicting the consensus among big-bank economists. But multiple observers are anticipating Montreal’s market will continue to show strength this year.

The Canada Mortgage and Housing Corporation says demand from growth in employment and a prime homebuying demographic, those aged between 25 and 44, will support the market over the next two years.

Meantime, Douglas Porter, BMO’s chief economist, is forecasting a healthy 2019 for the Montreal market.

This summer, Paul Cardinal, an analyst with the Quebec Federation of Real Estate Boards told Livabl, “The strength of the [Montreal] market is built on incredibly strong fundamentals.”

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