The Canadian housing market is on the road to recovery, a new report by real estate brokerage Royal LePage suggests.

The average price of a two-storey home in Canada in the third quarter of 2009 was comparable to a year ago, up 0.1 per cent to $409,335.

Average bungalow values increased 0.06 per cent year-over-year to $341,146, while the price of an average condominium increased 0.09 per cent to $243,748, the company said.

After the recession caused a sales drought and declining prices in the fourth quarter of 2008 and first quarter of 2009, there's actually a "pronounced undersupply" of homes in Ontario and other parts of the country.

Bidding wars in some cities

A shortage in housing supply is leading to bidding wars in several cities, including Toronto, Richmond Hill, Ont., Markham, Ont., Montreal, St. John’s, Saint John, Moncton, Edmonton, Calgary, North and West Vancouver, and Victoria, the company said.

But the company stopped well short of predicting a boom to come. The data suggests a "normal market correction and not the beginning of another aggressive expansionary cycle," the company said.

"Once housing supply returns to normal levels, we believe the economy will support modest pricing growth into 2010,” Royal LePage president Phil Soper said in a statement.

Regionally, the Atlantic provinces saw a strong recovery in home prices with double-digit percentage increases year-over-year in some markets in the third quarter of 2009.

Western provinces, especially British Columbia and Alberta, have been slower to recover from the significant price corrections that occurred in 2008, the company said.

Ontario and Quebec saw home prices stabilize or gain slightly year-over-year with much of the recovery occurring throughout the strong third quarter.

The Royal LePage survey is the largest monitor of seven types of housing in more than 250 neighbourhoods across the country.