May 31, 2022

Canadian real estate prices are the most overvalued in decades, but not all markets are equal. Most regions are overvalued, but nowhere is even close to Greater Toronto. The last time a trend deviation this large occurred, it took a whopping 15 years to complete a correction.

When shelter costs rise too high, they divert capital from the productive economy. The more indebted households are, the more the economy will see slow growth. Eventually an economy faces one of two options:. 1. Prices fall in real terms and the economy’s healthy balance is restored quickly or 2. Prices continue to disconnect through policy intervention until systemic failure.


GTA home prices were 41.2% overvalued in Q1 2022, a finding consistent with data from Moody’s Analytics (43.6%). Most of the region is overvalued, but the bulk of this froth is located in Toronto’s suburban areas. The exurbs are pushing the highest level of overvaluation in the country.


The rest of Canada’s frothy markets almost seem like a deal compared to Toronto. Quebec (32.6%) and Atlantic Canada (34.7%) used to be affordability hubs, now they only look affordable relative to Ontario. British Columbia (21.4%) is very overvalued but not nearly to the extent as say, Ontario.


Most of Canada’s real estate markets are significantly overvalued, as buyers price in years of growth. However, some provinces managed to maintain healthy valuations. Alberta (-5.0%) and Saskatchewan (-3.4%) were undervalued in Q1 2022. Over in Manitoba (12.3%), the market is still overvalued.