Vancouver home prices could drop by more than 15%

The bank's team of economists forecast by 2012 national home prices will fall by as much as 10%, while Vancouver home prices, which are the most inflated -- will likely drop by as much as 16%.

BMO Economics pointed out in a report on Wednesday that the average price for a home in Vancouver of $831,555 is up by a "staggering" 25.7% year-over-year.

"Quite simply, no other city in the country is seeing anything remotely close to what's unfolding in Vancouver. In fact, many large cities have posted price declines over the past year, notably Calgary, Edmonton and Halifax," the report stated.

"Among the other largest cities, only Toronto is showing anything close to overheating, and its 8.7% year-over-year price gain seems to fall well shy of bubble territory"

Overheated Vancouver market

Pricy real estate transactions in Vancouver, along with steady appreciation in Toronto, continued to push the national average home price up in May, according to the Canadian Real Estate Association (CREA).

The national average price for homes sold in May 2011 rose 8.6% to $376,817 from the same month last year. But if Vancouver is excluded from the calculation, the year-over-year increase in the national average price is 5.6%. If Toronto is excluded, that gain is just 3.7%.

CREA Senior Economist Gregory Klump said this distinction has been made to ensure that people are not misinterpreting national statistics.

"Failure to recognize changes in the mix of sales activity can lead to misinterpretation of average price fluctuations. It can also give rise to faulty predictions of broadly based home price deflation by way of price correction," said in a press release.

Homes sales stabilizing

Despite rising home prices, national seasonally adjusted residential sales edged down by less than 1% in May compared to April (actual sales rose 2.7%). Sales in Edmonton and Toronto, which reached their highest level on record for the month of May, offset declines in activity in Vancouver and Ottawa.

A total of 196,749 homes have been sold through the association's multiple listings service (MLS) this year, putting sales on track with the 10-year average for year-to-date activity in May.

Real estate transactions dropped sharply last year between April and July - something the association warns will continue to affect year-over-year comparisons in the coming months.

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