The weakness in oil prices could spell trouble for the overvalued Canadian housing market, particularly in energy-rich regions such as Alberta, says Fitch Ratings.

The rating agency indicates that the economic uncertainty that is implied by the Bank of Canada’s surprise interest rate cut last week “could be detrimental for home prices.” The Bank of Canada lowered its national GDP forecast for 2015 to 2.1% from 2.4%, based on its revised expectations for oil prices.

Fitch views Canadian house prices as 20% overvalued compared to long-term economic fundamentals. It points out that home prices have grown over the last several years despite low levels of affordability and high household-debt-to-income ratios. Yet, it is still forecasting prices to rise by another 2.5% in 2015 based on continuing market momentum.

That said, in a new report, Fitch warns that the potential economic weakness resulting from lower energy prices raises the risk of price downturns in certain local markets.

“The impact could be acutely felt in energy-producing regions,” it says, noting that in Calgary and Edmonton home sales fell 25% from November to December. “While some of this decline is attributable to seasonality, this is the largest decline in sales since the financial crisis and does not yet reflect the full economic impact of lower energy prices,” it says.

Fitch says that oil and gas extraction accounts for about 6% of Canadian GDP. Whereas in Alberta, it represents more than 25% of total economic production. And, it reports that, historically, Alberta’s mortgage delinquencies have been closely correlated with oil prices; and have been significantly more volatile than for the country as a whole.

For instance, it says that delinquencies doubled from 0.32% to 0.65% as oil prices fell from February 1993 to February 1996, it says. And, when crude oil prices plunged from US$140 per barrel to US$40/bbl during the 2008 credit crisis, delinquencies rose by nearly five times, up to 0.83%. Current delinquency levels are low, at 0.27% of outstanding mortgages in the province, it says.

“Overall, the Bank of Canada rate cut is not expected to have a significant impact on borrowers, since early indications are that most lenders do not expect to pass through lower mortgage rates as a result. The rate cut will keep mortgage rates near historical lows and forestall any payment stress,” it says. Fitch had previously projected a 40 basis point increase in mortgage rates in 2015, but following the rate cut, it is now forecasting rates to be stable with modest pressure near the end of the year.