After waving a red flag of warning about Canada's housing market for more than two years, Canada's national housing agency says the overall level of vulnerability has inched down from high to moderate over the past six months.

That's one of the main takeaways of a quarterly report from the Canada Mortgage and Housing Corporation on Thursday, in which the housing agency looks at some of Canada's biggest housing markets and assesses their risk level based on four factors:

Overheating: when the number of home sales significantly outpaces the number of new listings.

when the number of home sales significantly outpaces the number of new listings. Price acceleration: when prices rise quickly, which can be a sign of speculative activity.

when prices rise quickly, which can be a sign of speculative activity. Overvaluation: when prices are higher than incomes, mortgage rates and local rents can justify.

when prices are higher than incomes, mortgage rates and local rents can justify. Overbuilding: when there is a higher-than-normal vacancy rate for rentals, or a higher-than-normal amount of new buildings that have yet to sell.

The agency looks at these factors, tabulates them, and gives each market a colour-coded grade for how worried it is. Green means there's little evidence of a problem, yellow means there's some reason for concern, and red means there is a high risk.

Nationally, the CMHC gives the housing market a yellow. It's the second quarter in a row for that rating, after assessments for the previous two and a half years found there to be a high level of concern overall. Across the country, the CMHC says there's little evidence of widespread overheating, price acceleration, or overbuilding. But there's enough overvaluation to warrant a yellow flag.

"Moderate evidence of overvaluation continues to be the only sign of vulnerability for Canada as a whole," CMHC's chief economist Bob Dugan said. "Imbalances between house prices and housing market fundamentals have narrowed with declining home prices in the resale market and a growing pool of potential first-time home buyers."

While the national picture is looking OK, there are regional pockets of major worry in various places across the country.

The CMHC's grading system found moderate reason for concern overall, with pockets of higher risk in some places. (CMHC)

Regina was given a red warning flag for overbuilding, while Victoria, Hamilton and Toronto's markets were also given a red overall because they all scored solid yellows in every category except that one. "However, conditions for these factors are showing signs of easing in all three centres," the CMHC said.

Vancouver used to be on the red flag list, but came off it in the past quarter, mainly because prices have come down a little even as fundamentals have improved — in the CMHC's estimation. While the city's real estate is still moderately overvalued, there's little evidence of the other three categories, which is why it was a yellow flag overall.

Moving east from B.C., Edmonton, Calgary, Saskatoon, Regina and Winnipeg all scored yellows overall, mainly because of overbuilding. Otherwise, it's almost all green except for some modest overvaluation in Winnipeg.

Across central and eastern Canada, Ottawa, Montreal, Quebec City, Moncton, Halifax and St. John's were all deemed low risks overall, although Montreal and Moncton were singled out for overheating, while St John's is showing signs of overbuilding.

Overall, the agency says the real estate market is looking a little better mainly because average prices are ticking down, even as incomes and population levels keep rising.

"Combined with declining home prices in the resale market, these dynamics contribute to maintaining the average estimate of overvaluation near zero," the CMHC said.