Canadian Real Estate Markets Are Up To 108% Overvalued: Moody’s | Ezine Daddy

Canadian real estate is significantly overvalued, according to a giant institutional intelligence agency. Moody’s Analytics has released its fourth quarter 2021 house price assessment. They noted that home prices have continued to rise above trend, indicating overvaluation. Cities are now overvalued by as much as 108%, a problem that is particularly acute in southern Ontario.

Canadian real estate is overvalued by 23%

Canadian real estate shows a clear deviation from the price trend. Urban prices are overvalued by 22.9% in Q4 2021, up only slightly from 22.6% in Q2 2021. An overvalued market per se does not mean a crash is inevitable.

Growth stagnation for a very long time is one possibility, referred to as a “soft landing.” Bladder expert Hilliard MacBeth says he can’t find any evidence that ever arose. Somewhere. He suggests that a bubble can pause and get bigger, but ultimately that’s just a bigger bubble. It’s theoretically possible, it just never happened.

Alternatively, housing construction can continue to draw funds out of the productive economy. That usually ends in a major recession or financial crisis. It’s a gamble that policymakers must take, sometimes known as can kicking.

The provinces in eastern Canada are the most overvalued

Obviously, some provinces are overrated, but it’s less obvious which ones. The most overvalued are Nova Scotia (25.3%), PEI (23.6%), Quebec 17.7% and Ontario (17.1%). When that is over, these markets will be overrepresented in the national urban aggregate. Only slight overvaluations can be observed in New Brunswick (2.4%) and British Columbia (0.3%). Stop bitching – nobody says BC is affordable. It deviates only minimally from its trend, and the whole province isn’t Vancouver, which we’ll get to in a moment.

Canadian real estate over/under valuation

The deviation of real estate prices from the trend. Positive numbers indicate potential overvaluation, while negative ones indicate undervaluation.

Source: Moody’s Analytics, RPS; Live better.

Real estate in Western Canada could be significantly undervalued

There are still undervalued provinces, all of which are in oil-rich provinces. Alberta (-22.7%), Saskatchewan (-21.7%) and Newfoundland (-13.9%) were all grossly undervalued. Manitoba (-6.9%) has a more modest understatement, but that’s still a lot for an entire province. Now let’s look at the markets by city.

Real estate in Toronto is almost twice as overvalued as Vancouver

Canada’s largest real estate markets are extremely overvalued. Toronto (43.6%), Montreal (30.3%) and Vancouver (22.3%) are massively above the national trend. High-flying Halifax (13.0%) is also overrated, but below the national average.

Canadian real estate markets are overvalued by as much as 108%

Now let’s take a look at the most overrated cities, concentrated in southern Ontario. The top spot goes to Peterborough (107.8%), followed by St Catharines-Niagara (106.9%) and Windsor (100.5%). A three-digit overvaluation in these cities makes Hamilton (78.1%) look almost tame. Hamilton’s number is actually lower than the Canadian Parliament’s estimate.

Concentration in southern Ontario comes with a widespread belief in a lack of inventory. Experts are increasingly showing data points that challenge this opinion. Prominent economists even declare it outright a myth.

However, the overvaluation is not exclusive to Southern Ontario. Moody’s estimates that 77.1% of Canadian markets are currently overvalued.

Canadian real estate over/under valuation

The deviation of real estate prices from the trend. Positive numbers indicate potential overvaluation, while negative ones indicate undervaluation.

Source: Moody’s Analytics, RPS; Live better.

Only 1 in 5 real estate markets is undervalued

It’s shocking, but Canadian real estate speculators missed a few cities. Saskatoon (-38.0%), Calgary (-32.0%) and Edmonton (-29.0%) had the largest undervaluations. About every fifth (22.9%) real estate market is undervalued. Most are in western Canada, but there are also some in Atlantic Canada.

Earlier this month, Moody’s warned that higher interest rates would slow the market. They don’t see a significant correction in the works (yet?), but have warned of downside risks. Other companies like Oxford Economics are seeing significant corrections. While returning to our earlier point, intervention can keep prices inefficient. They warn that this would likely lead to a financial crisis, rather than just a correction in home prices.

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