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Bank of Montreal chief economist Douglas Porter outlines the top three factors that he believes have been propping up Canada’s housing marketGlenn Lowson/The Globe and Mail

Bank of Montreal chief economist Douglas Porter, who has generally defended the strength of the Canadian housing market, has become a little bit more cautious – especially about Toronto.

In a research note Wednesday titled "Sympathy for the Doomster," a play on Sympathy for the Devil by the Rolling Stones, Mr. Porter outlines the top three factors that he believes have been propping up Canada's housing market, in order of importance:

1. Extremely easy monetary policy. Mr. Porter says that ultra-low interest rates have kept homes affordable despite a run-up in prices.

2. Demographics. The echo boom generation (those in the 20-38 age bracket) is at its peak point for first-time home buying. "We expect demographic factors to turn mildly against the housing market by the turn of the decade, not long after rising interest rates are likely to make their presence felt, a potential double-whammy for housing," Mr. Porter writes.

3. Foreign buying. Global investors have been on the hunt for new investment opportunities that provide some yield, and Canadian real estate has fit the bill. That might not always be the case.

Mr. Porter says that, by his measures, the "so-called Canadian housing bubble" is relegated to just Toronto and Vancouver. Victoria and Calgary have similar levels of price overvaluation, but values are already easing in Victoria, and in Calgary they make sense because of a population surge, he says.

He tells me that it's Toronto that really worries him the most: "I think Toronto really does stand out at this point."

For the time being, he says he still refuses to join the camp of housing bears who think a market crash is inevitable. "We are still not convinced that Canada's housing market is in a true bubble, even the heated Toronto market," he writes in his research note.

One reason is that the dramatic rise in home prices over the past decade actually follows a period during which real (i.e. inflation-adjusted) prices lay fallow. Between 1990 and the start of 2002, real home prices fell by 6.4 per cent, he says.

Another reason is that he suggests Canadian cities have achieved a higher standing than they once had. "Yes, Vancouver is one of the priciest cities in the world, but it shares many of the same attributes as like-priced cities (Sydney, Hong Kong and San Francisco)," he writes.

For now, he suggests that the only real policy maker that Ottawa should consider at this point to further curb the market is a potential tax on non-resident purchases of real estate, something that Australia has.