As a consequence, price growth for Q3 2007 slipped back to 8.2 per cent compared to 9.6 per cent in the same period a year earlier.
Latvia, the long-running top performer, was knocked off the top spot by the massive 30.6 per cent annual growth in Bulgaria. This is in spite of concerns about oversupply in tourist heavy areas of the country, such as the ski resort Bansko.
Latvia, indeed, tumbled to twelfth spot with annual growth in Riga of just 10.2 per cent for the third quarter.
Knight Frank attributes much of this to unsustainable levels of previous growth, though they also point the finger of blame at rising interest rates, falling consumer confidence and legislative changes in Latvia.
The slowdown was also evident in other Baltic countries, as Tallinn in Estonia suffered a significant drop in price growth from 16 per cent in Q3 2006 to 5.2 per cent in Q3 2007.
Although rental demand is strong and rental values are on the rise, Knight Frank speculates that price growth is slipping as locals become priced out of the market by overseas investors.
Western Europe has also experienced a substantial slowdown, not least Ireland, where prices outside of Dublin have been falling especially fast.
Following its massive growth over the last five years, inflation has finally turned negative, at -0.9 per cent for Q3 2007.
Spain has also witnessed a correction in its house prices in the wake of massive growth, with inflation now at a more sustainable 5.3 per cent.
Scandinavian markets are looking much more robust, particularly Iceland, which is currently experiencing massive inflation despite interest rates of 13.75 per cent.
Annual growth of 14 per cent has propelled the new entry to number four in Knight Frank's rankings.
Markets in Asia Pacific continue to do well, with price growth increasing steadily in Singapore over the last two years, giving it an annual rate of 27.6 per cent.
While growth in New Zealand has slowed from the previous quarter and sales volumes have fallen, prices were still up by 11.8 per cent, which was an improvement on 12 months earlier when the rate of growth was 8.6 per cent.
Australia was also performing well, thanks to high growth in Brisbane, Melbourne and Adelaide which contributed to annual inflation of 10.3 per cent.
And Hong Kong continued its resurgence with price inflation of ten per cent.
Elsewhere South Africa has benefited from soaring demand in coastal locations, which has fuelled its 14.4 per cent price growth for the third quarter.
Subsequently it has rocketed up the ranks on Knight Frank's index from number 21 a year ago to its current third position.
And despite falls across numerous parts of the United States such as Michigan (-3.7 per cent) and California (-3.6 per cent) overall the country recorded a 1.8 per cent rise
The market in Canada remained remarkably detached from its stateside neighbour thanks to demand for commodities from Asia. As a result, inflation rose to 11.7 per cent over the third quarter.