Canada’s housing market has been stronger recently than anyone expected, but that’s not good news to the Bank of Canada.

In its latest monetary policy report, the central bank slashed its forecast for Canada's economy for the next three years, and warned that further strengthening in the housing market “could increase the risk of a correction in house prices down the road.”

The bank suggested that house prices in certain markets were too high and “remain an important downside risk to the Canadian economy.”

Canada’s housing market has confounded the experts this year, and even the most optimistic observers did not predict the rebound seen in the past several months. Home prices across Canada were up 8.8 per cent, on average, from the year before as of last month, according to the Canadian Real Estate Association.

But home sales are another story altogether. The closely-watched Toronto market is on track to record the lowest number of new home sales in a decade, according to the Building Industry and Land Development Association (BILD).

"Near record high pricing has pushed the affordability of ground-related housing beyond the reach of many new home buyers in the GTA,” BILD CEO Bryan Tuckey said. “This has resulted in a considerable reduction in sales, and the economic effects will likely be felt within a few years."

All the same, prices of single family homes in the Toronto area grew 6 per cent, and condo prices remained stable, BILD found.

Some observers say the small mortgage rate hikes that took place this spring are behind the strong house prices, as buyers were motivated to lock in now, before rates rose any further.

This phenomenon “would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on,” the Bank of Canada said.

The bank hinted Wednesday that it may keep interest rates low longer than it had previously forecast, due to a deteriorating forecast for the economy.

That could be either good news or bad news for the housing market. Lower interest rates are supportive of house prices. But if recent strength has been due to people flooding the market ahead of expected rate hikes, then the bank’s announcement will reduce pressure on the housing market, potentially weakening it.

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  • Calgary - $4 million

    This newly-built home just northwest of downtown Calgary not only looks cool and has excellent views of the city, it features some pretty slick amenities, such as built-in kitchen appliances, a 1,500-bottle wine cellar and five bedrooms across 5,300 square feet of living space.

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Calgary - $4 million

  • Montreal - $3.25 million

    This house in Montreal's old-money Westmount area was built in 1857 and, with its awesome wrap-around porch, may be the coolest heritage residential building for sale in Canada right now. It's actually three units -- a main house, a townhouse in the back and what's referred to as the "well house." Three bedrooms and two baths in the main house.

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • Montreal - $3.25 million

  • West Vancouver - $7 million

    Can you say house with a view? This four-bedroom property features not only one of the best views out of anyone's living room window in the country, it also has an outdoor pool, sunk slightly below house level, with views all its own. Four bedrooms and an elevator in this house the realtor describes as an "amazing entertainment home."

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • West Vancouver - $7 million

  • Vancouver - $8 million

    Located in Vancouver's (now) prestigious neighbourhood of Kerrisdale, this house is described by the realtor as "an expression of West Coast Modernism." We're not sure what that means, but this house's situation next to an elegant outdoor pool is certainly eye-catching. Four bedrooms on 5,200 square feet of living space.

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Vancouver - $8 million

  • Cape St. Mary's, Nova Scotia - $3 million

    The coolest thing about this house is the location -- look at where it's sitting! Not for the faint of heart, this eight-year-old house sits perched 90 feet above the Atlantic Ocean on the Nova Scotia coast. Five bedrooms in this property that sits on 16 acres of land.