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Following new mortgage regulations and higher rates, Canada's most expensive housing markets have slowed sharply this year.

The housing market in Toronto has showed signs of stabilization in recent months.

But Vancouver may not be headed for a similarly soft landing, economists say.

As Canada's housing market cools down, economists say some of its once-booming cities look poised for uneven corrections.

Canada’s housing market has cooled since new mortgage regulations aimed at reining in demand and risky lending took effect at the start of the year, with national sales falling 3.7% from a year earlier in October. Toronto appears to have stabilized in wake of the legislation, which requires stress tests on uninsured mortgages, but other cities may not be headed toward a similarly soft landing.

Vancouver's housing market is more overvalued than Toronto's, Capital Economics senior Canada economist Stephen Brown said in a note titled "Vancouver housing heading for bumpy landing." And there are signs excess supply could be coming within the next couple of years, with Vancouver's home listings jumping to four-year highs this fall.

Toronto’s regional real estate board said this month that sales rose 6% last month from a year earlier, with the average selling price up about 3.5% in that same period. Meanwhile, sales in Vancouver remained well below historic averages in October.

Because housing prices in Toronto are less stretched relative to income than in Vancouver — where a five-year, fixed-rate mortgage for an average property with a 20% down payment makes up 72% of pre-tax household income — tighter regulations may have influenced the market there to a greater degree. Home prices in Vancouver are more than 12 times the median household income, according to Capital Economics, compared with nine times in Toronto.

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"The upshot of all this is that there are numerous reasons to think that Vancouver house prices are more vulnerable to a correction than those in Toronto," Brown added. "Because of that, there is greater reason to think that the regulation-induced downturn in sales will be sustained and will lead to a drop in house prices."

Canada's central bank, which has raised interest rates five times since last summer, has been closely watching the housing market. On Thursday, Bank of Canada senior deputy governor Carolyn Wilkins said risks are still elevated despite higher borrowing costs and and stricter mortgage rules.

"The vulnerabilities are down but they are still high," she said at an Ottawa conference hosted by the Canada Mortgage and Housing Corporation.

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