CMHC says Canada's housing market is modestly overvalued, and says the high-risk cities are not the overheated markets of Vancouver and Toronto, but the more unlikely candidates of Regina and Winnipeg.

In its updated house price analysis issued Thursday, Canada Mortgage and Housing Corp. attempts to highlight the risk of correction by looking at economic, financial and demographic drivers in 12 urban markets.

In Regina, the inventory of completed and unsold units, particularly condos, is at a record high, the housing agency said. Builders have scaled back in 2015, but there is still more supply of new homes than demand.

The city also has seen strong housing price growth in recent years, combined with only modest gains in personal income.

In Winnipeg the risk is similar. There is high inventory of both single-detached homes and multi-unit homes and the multi-unit builders have not reduced the number of housing starts in response to market conditions, CMHC said.

Winnipeg has also seen housing prices rise more quickly than gains in personal income. The result is a high number of unsold units.

Toronto's moderate risk

Toronto, Montreal and Quebec have been assessed as moderate risk markets.

CMHC warns about overbuilding, particularly of condos, in Toronto and Montreal. The housing agency points to continued new supply which could have trouble finding buyers and drive down prices.

"Inventory management is necessary to make sure that the currently elevated number of condominium units under construction does not remain unsold upon completion," it said in its analysis for both markets.

While it notes the rapid runup of Toronto home prices, it says growth in personal income has almost kept up.

In Greater Vancouver, with the highest housing prices in the country, CMHC sees low risk.

Despite detached homes selling for an average of over $1 million and condos for $390,200, demand for housing is being supported by a growing population and growing disposable incomes, CMHC said.

Change coming in Calgary

"At the upper end of the price spectrum, high net-worth residents, and those who have gained equity in their homes, are more likely to buy single-detached homes in central locations and luxury properties. Employment growth, long term population growth, and a limited supply of land for development provide further support to Vancouver prices," it said in its analysis.

It assesses Calgary as low-risk, but notes the potential for downward pressure as sales slow while new listing rise. The Calgary economy is being hurt by fewer people coming to the city and low oil prices which have resulted in a loss of personal income for many Calgarians.  

The Calgary market is currently overvalued, and market forces may drive down prices this year, CMHC said.

For Canada as a whole, housing prices are modestly overvalued, as prices are slightly higher than levels consistent with personal disposable income, population growth and other factors, CMHC said. 

Many analysts say the current low mortgage rates are driving demand for Canadian homes.