The rising cost of homes compared to household incomes and rents will mean a slowdown in price appreciation, Fitch Ratings says.

Noting the impact of low interest rates and foreign investment on the Canadian housing market, the ratings firm says that a 30 per cent increase in prices in Toronto and Vancouver in the past three years is unsustainable.

The firm highlights the recent easing of prices in Vancouver and says that federal and local policy changes to cool the markets will see price appreciation slow to 3 per cent in 2017, from 12 per cent last year.

It expects the tightening of mortgage lending by CMHC last year to temper the rise in mortgage demand which has been boosted by low rates.

Fitch also expects US home price appreciation to ease this year, down to 4 per cent from 5 per cent in 2016.

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