Canada’s housing statistics mask an emerging regional divide, say TD economists in a new report.

“Canada’s housing markets remained robust in early 2006, despite slightly higher mortgage rates. However, the dominant theme lurking beneath the national average results is clear signs that speculation has picked up in Western Canada, while housing markets in Central Canada appear to be coming in for a soft-landing,” said Craig Alexander, vp and deputy chief economist, TD Bank.

According to the TD report, Canada’s housing markets remain robust in early 2006, with prices in the first quarter rising at a year-over-year pace of close to 10%.

However, the national figures mask a major regional story. In Western Canada, real estate has been on fire, while in Central and Atlantic Canada housing appears to be cooling.

Sales in Ontario, Quebec and the Atlantic remain high, but the pace of price growth has slowed. TD said this is consistent with the view that a speculative bubble never developed in these regions and the moderation in housing activity is likely to remain orderly.

Within the West, much of the strength has been supported by strong fundamentals. Although the risk of speculative pressures is present, TD said “the prevailing level of affordability does not suggest that housing in Victoria, Edmonton, Calgary, Saskatoon or Winnipeg has become frothy.”

According to TD, Vancouver has the greatest bubble-like qualities, with prices rising at a 22% annual pace in the first quarter of 2006, average home prices reaching close to half a million dollars and affordability deteriorating to the worst level in the country.

“The Vancouver real estate market is clearly vulnerable to any deterioration in buyer sentiment, but the good news is that the economic fundamentals for Vancouver are likely to remain solid over the coming years, limiting any softening in the price environment,” TD said.