VANCOUVER — Vancouver's house prices could fall a further five per cent before 2013 is over, according to a BMO economist.

Sal Guatieri, BMO Capital Markets senior economist, made the prediction during a Tuesday conference call, while Royal LePage called for average prices to fall three per cent as fewer luxury homes sell.

Guatieri said tougher mortgage rules and the suspension of the federal immigrant investor program in July could be factors in Vancouver's real estate slowdown.

"Nowhere is the housing market weaker than in British Columbia, where resales are down 17 per cent in the year to November and are well below the past decade norm," Guatieri said. "Vancouver's resales have plunged 31 per cent in the year to December and benchmark prices are down just over three per cent since the spring."

He said the mortgage changes, limiting the life of a mortgage to 25 years from 30 and prohibiting mortgage insurance on homes more expensive than $1 million, will hit pricier markets the hardest. Housing prices are about 10 times average family incomes, Guatieri said, putting "Vancouver in the upper echelon of overvalued housing markets, not just in Canada, but across the world."

He said many would-be house buyers are opting to buy condos, rent instead of buy, or move to other cities because of the high prices.

Vancouver condos remain affordable, he said, but detached homes are out of reach for first-time buyers. He expects further declines in home prices during 2013.

"That would not be surprising nor exceptional as the city has faced four double-digit price corrections in the past three decades," Guatieri said.

The federal immigrant investor program allows people to immigrate to Canada if they can show they have business experience, a net worth of at least $1.6 million obtained legally and can invest $800,000 in an interest-free loan to Canada for five years to create jobs. There was a backlog of more than 23,000 applications to the program last April. In July, applications were suspended so the federal government could process existing applications and review the program.

"There is some speculation that wealthier foreign buyers are waiting to see if the government will restart that program before they purchase a house in Vancouver," Guatieri said. "What has supported Vancouver's housing market, at least in the past five years, is not income, it's wealth. A lot of that is foreign wealth, although we can't quantify that."

He said many of these buyers don't need a mortgage because they have the cash and can buy a house outright.

"But that supply of people is diminishing, especially as prices have continued to go up," he said. "Unless people continue to flood into Vancouver — foreign residents with a lot of money — that market looks very ripe for a meaningful correction — not a material one — of at least five per cent or so for the next year."

The Royal LePage Price Survey and Market Survey Forecast found that the average price of a detached bungalow in Vancouver decreased slightly year-over-year by 1.6 per cent to $1,001,250, while two-storey homes also dropped just over one per cent to $1,102,500. Condominiums dropped 3.6 per cent year-over-year to $481,250.

"The real estate market has been slow in Vancouver over the past eight months," said Bill Binnie, broker and owner of Royal LePage North Shore. "Sellers have not been bringing their listings to the market because prices have not been competitive while buyers have been sitting on the fence hoping prices will go down. The reality is that sellers are not interested in making any significant reductions in price and with our good local economy and healthy employment, there has not been pressure for them to sell."

Royal LePage forecasts that fewer high-end sales will cause average prices in Vancouver to drop three per cent by the end of 2013. Nationally, Royal LePage forecasts a one-per-cent gain in the average home price by the end of the year.

Guatieri said the decade-long housing boom across Canada is likely over and that returns on investment in real estate are likely to fall. However, he cited Alberta, Saskatchewan and Newfoundland as strong markets that will buck the trend, while prices will hold steady in the rest of the country.