The COVID-19 pandemic supercharged a market that already favoured sellers. With available listings hitting a record 14-year low before the pandemic, it is no wonder that housing prices have soared upward, with the Canadian Real Estate Association (CREA) forecasting the national average home price would rise a whopping 19.9 per cent on an annual basis to $690,000 in 2021. Low interest rates, economic support and lockdowns that drastically shifted the consumer appetite, contributed to a sharp increase in demand and consequently, price growth across virtually every market in Canada.

But did these changes cause real estate prices to become overvalued? According to Moody’s Analytics, a leading credit rating agency, this is most certainly the case. The firm’s forecasting model believes that real estate markets are overvalued by up to 91 per cent across Canada, with a 22.59-per-cent average in urban markets. The good news: despite this label, Moody’s is not expecting the bubble to burst, causing a housing crash. So, we can all let out a collective “phew”!

Can Higher Mortgage Rates Create a Dip?

Though real estate prices are overvalued, there is no expectation those prices are going to fall. Expectations are that higher mortgage rates will flatten the growth. As mortgage rates rise, their model is showing low to no price growth. Moody’s predicts that urban housing prices will rise 2.63 per cent from Q4 2021 to Q3 2022.

Let’s explore price trends, according to Moody’s:

The Toronto Real Estate Market

The Toronto housing market is overvalued by almost 40 per cent in Q2 2021, nearly double the national average. With no crash on the horizon, the numbers are forecast to hold steady in the coming years, with a growth of 0.86 per cent in 2022, followed by 0.05 per cent, Moody’s says. It’s bad news for anyone hoping the prices could dip to more affordable levels, but those who are looking to sell a Toronto property in the coming year can expect to enjoy the same generous profits as sellers in 2021.

The Vancouver Real Estate Market

The good news for the Vancouver housing market is that its overvaluation is not at the level of Toronto. According to Moody’s, the Vancouver market is overvalued by almost 23 per cent in Q2 2021. On the horizon is price growth of 1.17 per cent in 2022 and 1.32 per cent in 2023.

The Montreal Real Estate Market

Unlike Vancouver and Montreal, Moody’s says the Montreal real estate market is forecast to see a correction in prices. Though home prices are almost 25 per cent overvalued in Q2 2021, prices are forecast to fall. Moody’s has predicted a decline in 2022 and 2023 of 5.29 per cent and 7.21 per cent, respectively.

The Most Overvalued Housing Markets Are All in Ontario!

Neither Toronto, Montreal nor Vancouver can lay claim to the most overvalued market in Canada; that honour belongs to Niagara. The Niagara area, including St. Catherine’s, is an astonishing 90.8 per cent above trends in Q2 2021, per Moody’s. There are small dips expected, but they are minor corrections in comparison to these massive gains.

Joining the Niagara real estate market near the top of the leaderboard of overvalued markets are Peterborough, Windsor, Hamilton and London.

Saskatoon And Calgary Are the Most Undervalued Real Estate Markets

On the flip side of Niagara, you will find Saskatoon; a real estate market that has demonstrated strong growth but has admirably succeeded in constraining the swelling of property price tags. Prices have dropped 31.78 per cent below Q2 2021 in the Saskatoon housing market. Some good news for Saskatoon homeowners who have seen the value of their homes dip; there is forecasted growth for the year ahead with Moody’s saying values could rise by 8.75 per cent in 2022, with 9.7 per cent growth in 2023.

Calgary is another Western market that has seen real estate values drop since the oil crash in 2015, says Moody’s. According to their analysts, the market is 30.9 per cent below trend in Q2 2021; however, prices may grow over the next few years by 7.6 per cent in 2022 and nine per cent in 2023.

The Future of Canadian Real Estate

Looking into 2022 and beyond, many wonder if there is any relief coming to Canada’s urban housing markets. Will prices dip, or only climb further out of reach for the average homebuyer? Moody’s forecasting and predictions don’t paint a positive picture for those looking for more affordable or accessible housing costs. Prices may start climbing again in late 2023 as heightened immigration and a fully recovered labour market drive wage and salary growth. Add to this the return to in-office work, indoor dining, and large social gatherings, and the demand for housing close to the urban core may continue to swell.