Canada is careering towards a sharp fall in house prices with some areas of the country's market already showing signs that overbuilding and ultralow interest rates are taking their toll on the property market, Goldman Sachs reports.



Adding its voice to a growing chorus of concern, a report from Hui Shan, an economist at Goldman, late last week warned: "what goes up can keep going up, but then tends to come down."

Ranking high-growth property markets in the last four years, Canada comes fourth behind Israel, Norway and Switzerland, according to her research. But unlike some other markets, construction activity has been trending up for years and has not shown signs of slowing down in Canada, she explained.

(Read More: Canada's red hot housing market teeters on the brink)

"If the elevated level of homebuilding persists in coming years, the risk of overbuilding will increase substantially. And if the ongoing housing boom is followed by a housing bust, the price decline can be quite significant given the excess supply of housing at that point," she said.

Housing starts in Canada have shown recent gains, trending at 190,492 units in September compared to 188,440 in August, according to Canada Mortgage and Housing Corporation (CMHC). House prices, meanwhile, continue to defy the odds, with the national average sale price rising 8.8 percent on a year-over-year basis in September, according to the Canadian Real Estate Association (CREA).

Sales activity continues to remain strong with national home sales ticking higher by 0.8 percent from August to September, CREA have said, roughly in line with a 10-year average. Inventory figures also remain stable, according to the CREA, currently standing at 5.8 months - meaning it would take that amount of time to completely liquidate current inventories at the current rate of sales activity. Both datasets indicate that demand is still prevalent to some degree.