Canada’s housing market will move into a protracted slump around 2018 thanks to shifting population patterns, the Bank of Montreal predicts in a new analysis.

Economist Robert Kavcic says Canada’s long-running housing boom has been held up by demographics. A large number of “echo boomers,” children of the baby boomer generation, are currently in the 25-34 age range when people buy first homes.

This helps explain why condo construction has been so strong in recent years, Kavcic says -- young homebuyers prefer the urban lifestyle. To prove his point, he offers a chart showing that the last major housing market crisis in Canada -- in the late 1980s and early 1990s -- took place at a time when there was an unusually low number of people in the 25-34 age group.

bmo population chart

But what is good for Canadian house prices today may be bad news a few years down the road, as the number of people in the home-buying age range will begin to shrink this decade and will put downward pressure on the market starting around 2018, Kavcic writes.

He says that means Canada is “in the seventh inning” of its housing bull market.

Strong immigration into major centres like Toronto, Vancouver and Calgary will support the housing markets in those cities, but Quebec and Atlantic Canada, with lower population growth, will face a “significant challenge.”

That divide in the housing market is becoming evident already. While the major urban centres west of Quebec have been seeing strong (perhaps too strong) house price growth over the past year, housing markets east of Ontario have been stagnant.

The BMO analysis came the same week as a new report from the IMF identified Canada as one of a growing number of countries where house prices are becoming excessive relative to incomes.

The IMF identified Canada as having the world's second most expensive housing market, by that measure, with Belgium coming in first.

house price to income

The IMF didn’t use the term “housing bubble,” but warned that "the world must act to contain the risk of another devastating housing crash." The report made clear the IMF sees central banks’ low interest rates as causing house price inflation in many parts of the world.

House prices “remain well above the historical averages for a majority of countries” relative to income and rental rates, IMF deputy managing director Min Zhu said in a speech this week, as quoted by the Financial Times.

“This is true for instance for Australia, Belgium, Canada, Norway and Sweden.”

Many economists in Canada have been arguing that this is not a good measure of the health of the housing market, because those rock-bottom interest rates have made mortgage payments affordable even if prices are high.

However, that logic applies to the other countries with overvalued housing markets. Sweden’s key lending rate is lower than Canada’s at 0.75 per cent, and Belgium’s most-overpriced market benefits from the EU’s incredibly low 0.15 per cent base rate. This suggests that, whether or not a global housing correction is in the cards, Canada will be no exception.

BMO's Kavcic sees some bright spots on the horizon. He notes that those echo boomers who are buying condos today will soon start having children and will want to move into single-family homes, which will support that segment of the housing market. He even sees further upward pressure on single-family home prices, especially in cities that attract a lot of immigrants.

“Trust me, backyards and quiet streets move way up the priority list when the kids start moving,” he writes.

But in many of Canada’s largest housing markets, such as Toronto and Vancouver, single-family homes have become effectively unaffordable for average earning households (see slideshow below).

Single-family homes in these cities now average upwards of $1 million. Not even Canada’s low interest rates can make that affordable for most families.

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  • Montreal: $85,600

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $65,400 For a condo: $51,300 Source: RBC

  • Edmonton: $85,700

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $75,800 For a condo: Source: RBC

  • Nationwide: $92,200

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $81,200 For a condo: $52,400 Source: RBC

  • Ottawa: $93,500

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $89,300 For a condo: $60,600 Source: RBC

  • Calgary: $98,300

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $96,700 For a condo: $57,200 Source: RBC

  • Toronto: $139,400

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $119,800 For a condo: $73,000 Source: RBC

  • Vancouver: $162,900

    Minimum qualifying income for a standard two-storey home. For a detached bungalow: $155,100 For a standard condo: $75,100 Source: RBC

  • NEXT: CANADA'S TINIEST HALF-MILLION-DOLLAR HOMES

  • Toronto: $520,000

    With the number of bedrooms in this house listed as "zero," it's pretty clear this former dental clinic in Toronto's East York is a pretty small house. The realtor boasts of "easy access" to highways (it's near the Don Valley Parkway) and transit.

  • Toronto: $520,000

    With the number of bedrooms in this house listed as "zero," it's pretty clear this former dental clinic in Toronto's East York is a pretty small house. The realtor boasts of "easy access" to highways (it's near the Don Valley Parkway) and transit.

  • Toronto: $520,000

    With the number of bedrooms in this house listed as "zero," it's pretty clear this former dental clinic in Toronto's East York is a pretty small house. The realtor boasts of "easy access" to highways (it's near the Don Valley Parkway) and transit.

  • New Westminster, B.C.: $579,000

    The house may only have 726 square feet, but the spacious 60-foot-by-140-foot lot means you can potentially build two new homes on the spot, and that's pretty much this property's main selling point.

  • Surrey, B.C.: $539,000

    The realtor selling this one doesn't even pretend the house is good value for money -- this house is "lot value only," is an opportunity for developers or investors to build something new on the land.

  • Surrey, B.C.: $539,000

    The realtor selling this one doesn't even pretend the house is good value for money -- this house is "lot value only," is an opportunity for developers or investors to build something new on the land.

  • Toronto: $519,000

    It may be super narrow, but this house in north Toronto actually has two stories and three bedrooms. It has a walk score of 90, so if avoiding traffic jams is your thing this could actually be something of a decent bargain...

  • Toronto: $519,000

    It may be super narrow, but this house in north Toronto actually has two stories and three bedrooms. It has a walk score of 90, so if avoiding traffic jams is your thing this could actually be something of a decent bargain...

  • Toronto: $519,000

    It may be super narrow, but this house in north Toronto actually has two stories and three bedrooms. It has a walk score of 90, so if avoiding traffic jams is your thing this could actually be something of a decent bargain...

  • Toronto: $430,000

    This house is a little less expensive than the others on this list, but it's here to illustrate just how little $430,000 will get you in Toronto these days. Two bedrooms in this house, but the realtor says you can still rent out the basement.

  • Toronto: $430,000

    This house is a little less expensive than the others on this list, but it's here to illustrate just how little $430,000 will get you in Toronto these days. Two bedrooms in this house, but the realtor says you can still rent out the basement.

  • Toronto: $430,000

    This house is a little less expensive than the others on this list, but it's here to illustrate just how little $430,000 will get you in Toronto these days. Two bedrooms in this house, but the realtor says you can still rent out the basement.

  • New Westminster, B.C.: $448,000

    Someone managed to squeeze four bedrooms into this little home in the Vancouver suburb of New West, but the realtor still sees building a new home on the spot as a good option.

  • New Westminster, B.C.: $448,000

    Someone managed to squeeze four bedrooms into this little home in the Vancouver suburb of New West, but the realtor still sees building a new home on the spot as a good option.

  • New Westminster, B.C.: $448,000

    Someone managed to squeeze four bedrooms into this little home in the Vancouver suburb of New West, but the realtor still sees building a new home on the spot as a good option.

  • Toronto: $549,000

    Two bedrooms in this little house but the real value is the land -- it has a 110-foot long lot, which on Toronto's inner east side is a sizable chunk of land.

  • Toronto: $549,000

    Two bedrooms in this little house but the real value is the land -- it has a 110-foot long lot, which on Toronto's inner east side is a sizable chunk of land.

  • Toronto: $549,000

    Two bedrooms in this little house but the real value is the land -- it has a 110-foot long lot, which on Toronto's inner east side is a sizable chunk of land.

  • Victoria, B.C.: $469,900

    Just because a house is tiny and overpriced doesn't it can't be colourful and meticulously decorated. Check out this little three-bedroom place in Victoria's inner city. The realtor boasts that the yard has a "really big organic garden -- no GMO seeds or chemicals used in 100 years." Yes, this must be British Columbia.

  • Victoria, B.C.: $469,900

    Just because a house is tiny and overpriced doesn't it can't be colourful and meticulously decorated. Check out this little three-bedroom place in Victoria's inner city. The realtor boasts that the yard has a "really big organic garden -- no GMO seeds or chemicals used in 100 years." Yes, this must be British Columbia.

  • Victoria, B.C.: $469,900

    Just because a house is tiny and overpriced doesn't it can't be colourful and meticulously decorated. Check out this little three-bedroom place in Victoria's inner city. The realtor boasts that the yard has a "really big organic garden -- no GMO seeds or chemicals used in 100 years." Yes, this must be British Columbia.

  • Toronto: $499,000

    Would you believe this house has two apartments in it? There's a three-bedroom unit upstairs and a two-bedroom unit in the basement. With a monthly rental income of around $2,500, you won't cover the mortgage on it, but an investor could make some money.

  • Toronto: $499,000

    Would you believe this house has two apartments in it? There's a three-bedroom unit upstairs and a two-bedroom unit in the basement. With a monthly rental income of around $2,500, you won't cover the mortgage on it, but an investor could make some money.

  • Toronto: $499,000

    Would you believe this house has two apartments in it? There's a three-bedroom unit upstairs and a two-bedroom unit in the basement. With a monthly rental income of around $2,500, you won't cover the mortgage on it, but an investor could make some money.

  • Surrey, B.C.: $539,000

    The realtor on this property doesn't even pretend the house is godo value for money. This is "lot value only," and presents an opportunity for investors and developers. Two bedrooms and two baths in the current house on the site.

  • Toronto: $549,995

    Two bedrooms and two bathrooms in this house on the city's east side. There's also a finished basement.

  • Toronto: $549,995

    Two bedrooms and two bathrooms in this house on the city's east side. There's also a finished basement.

  • Toronto: $549,995

    Two bedrooms and two bathrooms in this house on the city's east side. There's also a finished basement.

  • NEXT: MOST EXPENSIVE HOUSES FOR SALE IN CANADA, FEB. 2014 EDITION

  • Newfoundland and Labrador: $1.85 million

    This <a href="http://beta.realtor.ca/propertyDetails.aspx?PropertyId=14085863" target="_blank">six-bedroom home in St. John’s</a>, constructed over 100 years ago, boasts beautiful original features like beveled glass and “intricate” plaster work, as well as modern additions, such as “spa inspired ensuites with in-floor heated marble,” according to the listing.

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • Newfoundland and Labrador: $1.85 million

  • New Brunswick: $2.9 million

    This is actually two finished houses on 235 acres of land near St-Francois, N.B., and it's definitely one of those properties that look better on the inside than the outside. <a href="http://beta.realtor.ca/propertyDetails.aspx?PropertyId=13978788" target="_blank">Vaulted ceilings and fireplaces adorn this building</a>, which also boasts long walks in the woods -- on the property.

  • New Brunswick: $2.9 million

  • New Brunswick: $2.9 million

  • New Brunswick: $2.9 million

  • New Brunswick: $2.9 million