Continued signs of overheating in some cities leaves Canada’s housing market highly vulnerable for the sixth straight quarter, the federal housing agency said Tuesday as the country’s largest real estate board predicted another year of rising prices.

The Canada Mortgage and Housing Corporation said Tuesday that the country could fall prey to market instability. The cities of Toronto, Hamilton, Victoria and Vancouver are its greatest source of concern.

“This assessment is a result of the detection of moderate evidence of price acceleration and moderate evidence of overvaluation,” CMHC chief economist Bob Dugan said.

He noted that Manitoba, Quebec, and the Atlantic provinces are faring better than their Ontarian and British Columbian counterparts and that Calgary, Edmonton, Saskatoon and Regina are seeing rashes of overbuilding, but house prices there are in line with the population and its income.

He stressed that across the country there are only “weak” signs of overbuilding and overheating — a problem that has plagued the Greater Toronto Area in recent years.

The agency’s observations came the same day the Toronto Real Estate Board reported an 18 per cent drop in annual sales last year as the market started to cool from previous overheated conditions.

In its annual forecast released Tuesday, the board said it expects home sales this year to slip to somewhere between 85,000 and 95,0000, slightly lower than 2017 when there were 92,394 sales.

However, the real estate board also forecast that the average home will sell for between $800,000 and $850,000 — similar to TREB’s prediction for 2017.

“The midpoint of that range suggests a slight increase in the average selling price this year,” it said in the report.

The average selling price reached $822,681 last year.

The market is being dampened by the Ontario government’s moves to stabilize housing conditions after 2017 saw a busy first quarter, another interest rate hike from the Bank of Canada in January, a rise in five-year fixed mortgage rates and a new mortgage stress test brought in Jan.1.

“Federal and provincial policy decisions will act as a drag on demand for ownership housing,” TREB predicted in a Tuesday release.

“In response to the stress test, many intending buyers will change the type and/or location of home they are looking to purchase or potentially tap other down payment sources, rather than simply deciding not to purchase a home.”

TREB’s forecast comes about two weeks after the Canadian Real Estate Association slashed its outlook for 2018 to predict a 5.3 per cent drop in national sales to 486,600 units this year. When compared with previous estimates, that’s a drop of 8,500 units.

At the time, CREA said it was already seeing signs that the country was “fully recovering” from last year’s surge in home prices that sent the market into a frenzy.

TREB and CREA’s predicted Toronto slowdown is unlikely to seep across the country, TD Canada Trust economists Michael Dolega and Rishi Sondhi said in a note to investors on Tuesday.

They found Atlantic markets are looking positive “with the exception of Newfoundland and Labrador, owing to a continued influx of international migrants.”

In Alberta, Manitoba and Saskatchewan, they expect higher mortgage rates will lengthen the time needed for sales to recover and dampen activity, but Quebec will “enjoy a relatively healthy performance.”

However, they added, the recent mortgage regulations “coupled with higher rates will meaningfully weaken housing demand in the high priced Toronto and Vancouver markets, leading to softer activity in Ontario and B.C.”