Nothing garners more attention about claims of a housing bubble than headlines trumpeting that it has burst and the market is in free fall. Recent data out of what was one of Canada’s hottest housing markets, Vancouver, indicates that the party could now be over.

Now what?

Firstly, home sales for September 2016 fell below the 10-year monthly sales average.

In fact, Metro Vancouver sales volumes for the month of September plunged by a massive 33% compared with a year earlier. Many pundits have attributed this to the introduction of the foreign buyers’ tax by the British Columbia government

However, this may not necessarily be the case with the Canadian Real Estate Association pointing out that the volume of sales in Greater Vancouver had fallen sharply for the five straight months before the introduction of the tax.

These numbers certainly make it appear that Vancouver’s housing market is in the process of rebalancing, which will ease upward pressure on housing prices.

Secondly, there are signs that prices are cooling.

Data from the Real Estate Board of Greater Vancouver may show that the average home price for September shot up by a staggering 29% year over year, but it fell by 0.1% when compared with the previous month.

Notably, the month-over-month decrease in average home prices was greater among some property segments than others.

You see, while the average price for detached dwellings grew by 0.1% month over month, it declined by 0.1% for townhouses and 0.5% for apartments.

These segments, according to many pundits, have experienced the greatest degree of speculation and are the vulnerable segments of Vancouver’s real estate market to a correction.

Finally, the September 2016 sales-to-active-listings ratio, an indicator of the state of supply and demand, fell to its lowest level since February 2015.

The ratio is now at 24.1%–5% lower than the previous month and 7% less than the 34% recorded for September 2015. Such a sharp decline indicates that the strong demand for Vancouver housing is cooling, meaning that the market is rebalancing.

According to the Real Estate Board of Greater Vancouver, a balanced market exists when the ratio is between 12% and 20%. When this is achieved, home prices, according to the Board, will rise in line with the long-term average rate of inflation. 

So what?

It is becoming increasingly clear that the heady days of double-digit price growth in what was arguably Canada’s most overheated property market are drawing to a close. Whether this cooling in price growth will lead to a correction is difficult to ascertain.

A report from Royal Bank of Canada predicts that demand and prices will cool to more manageable levels in the near term.

Nevertheless, the new, tighter mortgage eligibility criteria, which Ottawa recently introduced in order to reduce household debt and cool a frothy housing market, will have an impact. While a correction may not emerge, this new legislation and a cooling real estate market is not good news for Canada’s banks. Over the years they have become accustomed to double-digit growth spurred on by Canadians’ ever-growing demand for housing finance.

While major banks with highly diversified operations such as Royal Bank, Toronto-Dominion Bank, and Bank of Nova Scotia will experience little fallout, smaller, more domestically focused banks could be hit hard.

Among the most vulnerable is Canadian Western Bank (TSX:CWB). Not only is western Canada its core market, but it is highly dependent on commercial mortgages, retail mortgages, and real estate development loans to generate growth in earnings. Any weakness in real estate markets in western Canada will hit its earnings growth hard.

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Fool contributor Matt Smith has no position in any stocks mentioned.