A real estate finance expert at UBC's Sauder School of Business is predicting that home values in most of Canada's urban centres are about to plunge.

A new study shows homes in most urban centres except Toronto and Edmonton are overvalued, priced up to 25 per cent higher than they should be to balance with rents.

Titled "Are Canadian Housing Markets Overpriced?", the study concluded housing affordability is a severe problem in some Canadian cities, limiting the ability of markets to continue to rise.

The study's author, University of British Columbia professor Tsur Somerville, said the decade-long boom in Canadian markets is over, and homeowners should brace for anything from a rapid price drop to a long, flat market.

To analyze whether housing prices are overvalued, the researchers looked at current house prices in nine major Canadian cities. They compared these prices to their own calculation of what a balanced market price should be, derived from the relationship between house prices, rents and the cost of investing in housing in each market.

The study warned that the potential for price declines is greatest in cities that have a large supply of unsold inventory or a mismatch between the number of units and the number of households ready to occupy them.

Somerville concluded that only in Toronto are prices in balance with rents. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20 per cent to be in balance, while Calgary and Vancouver would require a 7 to 11 per cent drop in prices to reach the study's equilibrium level. But the study found in Edmonton prices are actually below equilibrium, by 8 per cent 

But the study also found Canada's more conservative lending practices have prevented the speculative excess and severe downturn experienced in U.S. markets.

Recent market figures from the Greater Vancouver Real Estate Board have shown it is already getting cheaper to buy a home in the Greater Vancouver area. While the benchmark price for detached properties rose 1.6 per cent since August 2007, prices declined 4.3 per cent from record highs set in May 2008.

With files from The Canadian Press