UPDATE 1-Canada housing agency sees overvaluation in most cities

(Adds regional detail, price data)
By Andrea Hopkins
TORONTO, Oct 29 (Reuters) - Canada's housing market is
overvalued in most major cities, with prices in Toronto and
Vancouver accelerating faster than economic fundamentals, and
prices have remained high even in cities where the economy is
struggling, the federal housing agency said on Thursday.
In a report that highlights the nation's uneven real estate
market, the Canada Mortgage and Housing Corp said there is
strong evidence of overvaluation in Toronto, the nation's
largest market, while evidence of overvaluation in Vancouver has
ratcheted up to moderate from low three months ago.
While those two cities have long been Canada's hottest
housing markets, there is also overvaluation in many other
centers - but for a different reason, the CMHC report showed. In
the case of western Canadian cities like Winnipeg, Regina and
Saskatoon, prices remain high even as the economy sags.
"The most prevalent issue detected in 11 of the 15 centers
covered by the HMA is overvaluation," Bob Dugan, CMHC's chief
economist, said in the agency's quarterly Housing Market
Assessment (HMA).
"The continued rise in house prices (in Toronto) has not
been matched by growth in economic and demographic fundamentals
giving rise to strong evidence of overvaluation," the report
noted.
Canada's housing market has been in a prolonged boom since
2009 and economists have repeatedly warned that the sector is at
risk of a correction, though they disagree over whether the
market will manage a soft-landing or will crash.
Canadian home prices have climbed 45 percent since April
2009, according to the Teranet-National Bank Home Price Index.
Toronto prices have climbed 72 percent in that period and
Vancouver prices are up 51 percent.
While slow economic growth and a drop in oil prices have
cooled some markets, low interest rates have continued to
support demand, particularly in Toronto and Vancouver, where
CMHC said price acceleration at the most expensive end of the
spectrum skews average price data.
Even where the economy has slowed, as in the
resource-dependent cities like Calgary, Saskatoon and Regina,
home prices have not fallen to reflect the weaker fundamentals,
the report showed.
When four factors were considered - overheating, price
acceleration, overvaluation and overbuilding - Toronto,
Winnipeg, Regina and Saskatoon showed the strongest risk of
problematic conditions, the report concluded.
But Canada's overall housing market showed low evidence of
overheating, price acceleration and overbuilding, and only
moderate evidence of overvaluation, the report showed.