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House prices in Canada could be overvalued, says the Canada Mortgage and Housing Corporation in its annual report.

Despite a moderation in the pace of national house price growth, the cost of Canadian homes in 2013 continued to significantly exceed that of the United States. This was the case even when exchange rate and inflation differences were taken into account, which could indicate overvaluation, says CMHC.

In its annual report on the state of Canada’s housing market, CMHC said that while nearly half a million existing homes changed hands over the Multiple Listings Service in Canada last year, housing starts declined by 12.5 per cent in 2013, following a decade-long spurt of activity above the historical average.

CMHC said builders moderated the pace of new condos and rental apartments in 2013 because of a growth in unabsorbed inventory.

At the same time, housing-related expenditures came in below previous levels, accounting for 17.1 per cent of the total GDP in 2013, compared to the 17.6-per-cent average for 1990 to 2013.

CMHC said it is analyzing the Canadian-US differences in price levels to get a better picture of whether the price differential is structural, temporary or reflective of an overvalued housing market in Canada.

Follow Kat Sieniuc on Twitter: @katsieniuc

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