Canada’s housing market will continue to slow, with some of the sharpest declines occurring in large urban areas like Toronto — but the Canada Mortgage and Housing Corp. still sees no major crash in the offing.

The government-backed mortgage insurance agency says in its latest forecast that the market will continue to weaken this year, before stabilizing at what many would consider “fundamental” levels in 2015.

CMHC predicts the average home price will rise 3.5 per cent to $396,000 on a seasonally adjusted basis this year, and 1.6 per cent to $402,200 in 2015.

In terms of new building, the agency forecasts starts will range between 172,300 and 189,900 for a midpoint prediction of 181,100 this year, down from 187,923 in 2013 and 214,827 in 2012. The midpoint forecast for 2015 is 182,100, suggesting a flat, but not falling market.

“When you look at how the market has evolved over the past few years it is indeed headed toward a soft landing,” the agency’s deputy chief economist Mathieu Laberge said Wednesday.

Laberge says he sees no catalysts that would result in a hard crash in the market as some have predicted, most vociferously by Capital Economists analyst David Madani. Laberge says the fundamentals, particularly population, employment and economic growth, low interest rates and the pool of first-time buyers all support the market.

“When we set house prices against those fundamentals, we do see some modest level of over-evaluation, but it’s within historical norms.”

CIBC housing analyst Benjamin Tal agrees with the CMHC view, saying a crash would require a “trigger,” such as sharply rising mortgage rates, but there is no sign of that happening. The Bank of Canada under Stephen Poloz has taken a dovish stance on rates and many don’t expect any hikes until the spring of 2016, and even then that the increases will be small.

Barring such a shock, Tal says if anything the housing market may even perform better than the agency’s baseline forecast would suggest.

The CMHC spring report does see a slightly bigger correction occurring in the Toronto area — arguably the country’s hottest market — with starts slowing seven per cent to 31,000 in 2014, and stabilizing at that level in 2015. After a fast start to the year, condo construction will slow as the year progresses as will sales in the sector.

Construction of single detached homes in the greater Toronto area will dip about 20 per cent this year to 7,500 units, the CMHC says.

Overall, the agency sees the enthusiasm cooling for condo construction, which mostly occurs in large urban markets, as builders deal with inventory build-ups.

“Builders are expected to continue to manage their starts activity in order to ensure that demand from buyers seeking new condominium units is first channelled toward unsold completed units or unsold units that are currently under construction,” said the agency.

In terms of sales, CMHC also sees Multiple Listing Service sales flattening at about 457,900 units this year, virtually unchanged from 2013. Sales are expected to pick up to about 471,100 units in 2015.

The agency cautions there are risks to its moderate forecast, including the high level of household debt, economic difficulties in China and other emerging economies, and the high number of condos under construction in some markets.