Red flags, a possible Vancouver correction and the Ontario and BC housing markets potential to become economic drags: forward-looking narratives for the Canadian housing market haven’t been glowing accounts of late.

Moody’s, an economic analysis firm, outlines a different storyline in its latest report, summarized in its title “More Moderation, No Hard Landing.”

“There has been a lot of speculation about Canada’s housing markets overheating during the past two years,” writes Moody’s Economist Andres Carbacho-Burgos in the report, published today.

“The [Moody’s Analytics] house price outlook calls for a deceleration of house price growth, not for a serious decline, though there are exceptions for smaller regions,” it says.

Moody’s looks at factors including Canadians’ per-capita disposable income, land values and consumer spending to forecast future home prices in Canada.

It predicts detached home prices will rise 8.7% this year before annual growth begins to slow.

For 2017, it calls for appreciation of 5.4%. In 2018, Moody’s expects standalone home prices will increase 3.2%, and in both 2019 and 2020 rise 2.2%.

It will take until 2021 for price growth begin accelerating again, with a 2.5% uptick forecast for that year.

The condo market will take a similar path, the report states.

Following a 4.7-per-cent increase this year, prices will move upwards by a more muted 3.2% in 2017 and 2.4% through 2018.

Like on the detached side, growth is projected to be the same in 2019 and 2020, tracking at 1.7% in each year before rising 1.9% in 2021.

One factor that safeguards Canada from a widespread crash that topples the financial system is that the country has different industries that are supportive of economies in different regions across the country, the report suggests.

“As a result, there may still be individual regions within Canada where housing markets perform poorly in coming years, but the baseline forecast is for no overall national house price correction,” adds Carbacho-Burgos.

Moody’s acknowledges the possibility that Canada’s housing market is overheating right now, but says deteriorating affordability and a potential upswing in housing starts leading to a greater supply of homes are supportive of a slowdown rather than a collapse.

“Some of the largest house price imbalances are the result of international wealth inflows, rather than excessive risk-taking by mortgage lenders, so there is little systemic financial risk,” he says.

The Canadian Housing Market is Headed for “Moderation,” Not a Crash by Josh Sherman | Buzz Buzz Home