Housing activity in Central and Atlantic Canada has cooled down without prompting a price correction, but select urban centres in Western Canada are “flashing warning signs” that suggest the recent pace of price gains has been unsustainable, suggests a TD Economics report published on Thursday.

“Canada’s real estate markets appear to be in good shape and market conditions are becoming more balanced. Key exceptions are Vancouver, Calgary and Edmonton,” said Craig Alexander, deputy chief economist of TD Economics, who co-authored the Housing Bubble Watch report with Steve Chan. “The recent dramatic price gains in Calgary and Vancouver are unsustainable over the long-term, and both cities are vulnerable to significant moderation. Edmonton is also experiencing explosive price growth, but affordability remains surprisingly good.”

Canadian housing markets have boomed in recent years with extremely high levels of starts, sales and price gains, but the report’s authors state “the country’s real estate markets have generally lacked the degree of speculation that dominated past boom-bust cycles and the excesses have been far less than those evident in the U.S.”

Canada’s housing market at the national level is delivering a robust performance. Sales of existing homes are on track for another record year and strong demand has created upward pressure on prices. Resale home prices rose by 12.9% in the second quarter from a year earlier, which is marginally faster than the 12.0% gain posted in the first three months of the year and far exceeds the long-term national average of 5.6%.

However, the national story is being badly distorted by regional developments. Excluding Alberta and British Columbia, the average rise in resale prices across the other provinces is a more moderate 7.3%. Alberta is also responsible for almost half of the gain in the national average of new home prices. “Moreover,” Alexander said “the dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth — all of which point to more balanced market conditions and declining real estate risks.”