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Homeowners across most parts of Canada are facing the prospect of watching their houses fall in value over the next five years, reversing the trend after several years of price increases, according to a new housing forecast from Moody's Analytics.

A report by Moody's director Andres Carbacho-Burgos says a combination of higher interest rates, new mortgage-lending rules and declining affordability mean that house prices in many cities across Canada are likely to fall in coming years.

The report predicts an uneven impact, however. Large cities in Ontario, including Toronto, are likely to see price increases over the next five years as a result of population and wealth growth in the region, Mr. Carbacho-Burgos predicts, while most other cities outside of Ontario are forecast to see little price growth or price declines.

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On a national basis, single-family homes are forecast to grow an average of 1.3 per cent annually over the next five years, a significant decline from Canada's experience in recent years. Moody's national composite house-price index is expected to grow 6.8 per cent in 2017 after climbing by 11.2 per cent in 2016.

Mr. Carbacho-Burgos predicts prices in Toronto will climb by 7.7 per cent on an annualized basis over the next five years, while Ottawa-Gatineau will see prices climb by 3.4 per cent.

Vancouver, however, will see an annualized drop of 0.3 per cent in house prices, the report forecasts, while house prices in Montreal are expected to fall 0.6 per cent on an annualized basis. Calgary is facing the prospect of a 1.1-per-cent annualized decline in prices, Mr. Carbacho-Burgos said.

"While Greater Vancouver and Toronto will avoid any significant house price downturn, it is likely that Quebec, the Prairies and the Atlantic provinces will have at least minor house-price corrections in coming years," he concluded.

Mr. Carbacho-Burgos downgraded his forecast for house prices for many cities across Canada in the new report compared with his prior forecast from April because the Bank of Canada has raised interest rates twice since July, moving the key overnight lending rate to 1 per cent.

He said shifting monetary policy will make home buying more expensive by raising borrowing rates, and will also reduce real per-capita income growth for Canadians in coming years, which will also hurt housing prices.

While interest-rate increases will hit all buyers nationally, Mr. Carbacho-Burgos said other factors – such as different industry drivers, demographics and wealth inflows – will lead to differing outcomes on a local basis.

Thunder Bay and St. John's, for example, are forecast to have the largest price declines at 5.4 per cent and 6.1 per cent, respectively, on an annualized basis over five years because of falling median incomes and slow-to-negative rates of population growth and household formation, he said.

Vancouver will face "approximately level" house prices over the coming five years because of higher mortgage rates and recent restrictions introduced to curb speculators and foreign buyers, he said. Montreal will also be largely flat because it will not have significant new population-growth pressures, he said, while prices in Toronto will rise because of continuing population and wealth growth in the region.

Mr. Carbacho-Burgos also said slowdowns in house sales in Vancouver last year and in Toronto since April have "barely dented" the "serious overvaluation" of house prices in Toronto and Vancouver, which he says is the main problem facing Canada's housing market.