Momentum in the Canadian Residential Property Market

We examine the momentum effect in the Canadian residential property market across 11 metropolitan areas from 1990 to 2019. Consistent with prior research on the US housing market, we find strong evidence that Canadian metropolitan areas tend to continue their historical trajectories in housing market performance, demonstrating a strong momentum effect. Using zero-cost long-short portfolios formed based on lagged metropolitan-level housing market performance, we document average returns of up to 0.45% per month, which annualizes to approximately 5.54% per year using monthly compounding. These returns are both statistically and economically significant and remain robust across various formation and holding periods. The momentum effect is most pronounced during the 2000s and becomes stronger during housing market booms. Finally, we analyse the drivers of residential property appreciation in each metropolitan area, providing robust evidence on potential channels through which the momentum effect manifests in Canadian real estate markets.