A new report from the Conference Board of Canada predicts that the much-watched condo sector will avoid an ugly downturn, even in Toronto.

Economists and policy-makers are keeping a close eye on condos, especially in the country's most populous city, where cranes dot the sky. A number of economists say that too many units are being built, a development that would put pressure on prices. The Bank of Canada has highlighted the risks that this market could pose to the economy.

Condo sales plunged in most Canadian cities last year, and are expected to be down again this year.

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But Wednesday's report, which was done for mortgage insurer Genworth Canada, argues that the market will not sink too low, and will be propped up in part by population growth and modest employment gains.

While the report does say that higher mortgage rates could cool things off later this year or early next year, it adds that "a flood of foreclosures, and subsequent sharp supply increases, is simply not in the cards."

Homeowners are taking advantage of low interest rates to pay down their mortgages, offering a cushion when it comes time for them to renew, it says.

"Markets in Toronto and Montreal are cooling, but we think they will avoid major downturns, partly because, on the demand side, demographic requirements remain decent," the report says. "Also, the banks will continue to require builders to have healthy pre-sale levels before advancing construction financing, keeping supply somewhat in check."

Vancouver's condo market, it notes, is already well into a slowdown.

"While regional markets clearly vary in strength, all will benefit from an expanding population and a rising share of condominium-loving empty-nesters aged 55 or more," the report adds.

It also says that "weak pricing will help affordability." It predicts that principal and interest payments will drop in at least five major cities this year, led by a 2.5 per cent decline in Victoria.

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While payments are expected to rise in Alberta, the report says that Calgary and Edmonton are still the most affordable condo markets when local incomes are taken into account, with mortgage payments taking only about 9 per cent of household income. "By contrast, we expect payments to eat up roughly 20 per cent of Vancouver incomes," it says.

The report forecasts a 0.5 per cent drop in Vancouver resale condo prices this year, to $364,593. Victoria and Montreal are also expected to record price declines, with Montreal's average resale price dropping 0.7 per cent to $265,344. Toronto is forecast to see its average price remain flat this year, at $305,239.

The report predicts that all cities will see some price growth, ranging from 1.4 to 3.6 per cent, in 2014.