The federal housing agency says there is a risk of correction in Canadian housing markets in several cities, especially Toronto, Saskatoon and Regina,  because of overvaluation and overbuilding of real estate.

Canada Mortgage and Housing Corporation looks at housing markets in 15 Canadian cities every quarter, in an effort to detect housing bubbles.

Cities such as Calgary, Saskatoon, and Regina suffer from both overvaluation and overbuilding, as prices remain high and building continues in face of low oil prices.

The level of housing prices in these cities is not supported by the economic conditions, CMHC says. Prices remain high despite rising vacancies and falling demand for housing.

Alberta and Saskatchewan are facing weakening migration, employment, and income, which are in turn affecting housing markets, CMHC said in its report released Wednesday.

Overbuilding has worsened in Saskatoon and Regina, despite downward pressure on prices from weakened demand for housing, CMHC says.

Toronto in bubble territory

In Toronto, rapid price acceleration in the past year has led to prices that are just too high for detached homes, but CMHC is also monitoring the city for the potential emergence of overbuilding, especially in the condo market.

In a report released Wednesday, the Toronto Real Estate Board estimated the number of resale condo listings in the city rose 3.3 per cent in the fourth quarter of 2015, but sales were 5,596, an increase of 12.6 per cent.

That tightening of the market has pushed up condo prices, which rose 4.1 per cent to $382,070.

But CMHC is concerned about the acceleration in building of Toronto condos in the final quarter of the year, saying developers need to monitor inventories to prevent further overbuilding.

The rise in housing prices in Toronto has not been matched by a rise in disposable incomes, CMHC said.

Vancouver at moderate risk

It flagged Toronto as having a strong risk of nearing bubble territory. Regina and Saskatoon were also shown as having high levels of risk, while conditions in Winnipeg and Calgary had worsened in the quarter.

Despite having the highest home prices in Canada, Vancouver was only at moderate risk of overvaluation of real estate prices, CMHC said. It pointed to the city's low vacancy rates and the predominance of high net worth buyers, saying demand will remain strong.

Instead it saw more risk of overvaluation in Montreal and Quebec, where slower growth in first-time home buyer demand has combined with only modest increases in income.