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The benchmark price for detached houses sold in September in Greater Vancouver hit a record $1.58-million. – 33.7 per cent higher than in September, 2015DARRYL DYCK/The Globe and Mail

Real estate prices in the Vancouver region have gone up too much too quickly, creating conditions ripe for sharp declines, the author of a report on the country's most expensive real estate market says.

"Prices have accelerated sharply, especially at the beginning of 2016, and many more people were priced out of the market," Marc Pinsonneault, senior economist at National Bank of Canada, said in an interview. "Prices were overshooting."

The Teranet-National Bank House Price Index, which tracks overall change in price for various housing types, last month reached a record 249.53 (which means prices have climbed almost 150 per cent since June, 2005) in the region, but could fall 10 per cent over a 12-month period, Mr. Pinsonneault said. For all housing types, that would bring the broad index back to where it was in April.

Within that index, the value of detached houses could tumble 20 per cent over a 12-month period, likely to begin in late 2016, Mr. Pinsonneault estimates. For detached houses, it roughly translates into values that could retreat to levels last seen in October, 2015.

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Sales of detached houses, condos and townhouses have been falling in the region since peaking at a record high in March of this year.

Several measures have combined to dampen sales activity, including the B.C. government's new luxury tax on properties in the province that sell for more than $2-million. That tax took effect in February.

The provincial government also implemented a 15-per-cent tax on foreign home buyers in the Vancouver region, effective Aug. 2, although it is unclear how much of the sales decrease since is due to the tax. Another factor to consider is the impact of the federal government's decision to tighten mortgage lending rules effective Oct. 17.

The Teranet-National Bank House Price Index for the Vancouver region has gained 24 per cent over the past year, despite the recent sales slowdown.

The index shows pricing trends based on a large sample of the sales of properties registered at the land titles office.

"The index prices are different than average prices," Mr. Pinsonneault said.

The real estate industry's benchmark prices, which represent the sale of typical properties, remain strong. The benchmark price for detached homes sold last month in Greater Vancouver hit a record $1.58-million – 33.7 per cent higher than in September, 2015.

But with fewer high-end properties selling, that has dragged down the average price for detached houses sold in Greater Vancouver, compared with the spring. Last month, the price for detached houses sold in the region averaged $1.53-million, down 15.7 per cent from April, according to the Real Estate Board of Greater Vancouver.

By contrast, the Teranet-National Bank House Price Index has continued to roar ahead in the region this year. "The reason the sharp drop in sales has yet to translate into [an index] price decline is that the resale market remained tight despite the drop in sales," Mr. Pinsonneault wrote.

He said it is unclear whether a significant number of foreign buyers are shifting their attention to the Greater Toronto Area.

"China's anti-corruption campaign is suspected of crimping the flow of capital from that country," he said in his report, which notes that both the Vancouver and Toronto metropolitan markets are at risk of experiencing price declines in 2017.

The GTA faces a 3-per-cent overall drop its home price index next year, especially with condos expected to be plentiful in supply, Mr. Pinsonneault said. He believes the anticipated price decrease for detached houses in the GTA will likely be in line with his overall forecast.