The Canadian housing market continued to cool in May amid rising interest rates, with the average home price slipping to $711,000.
That's a decline of nearly 11 per cent from March, when the Bank of Canada first started to increase its benchmark interest rate to combat soaring inflation. However, May prices are still up 3.4 per cent from the same time last year.
The Canadian Real Estate Association (CREA) said on Wednesday that national home sales fell 8.6 per cent on a monthly basis in May, a more moderate decline than the 12.6 per cent drop seen in April, bringing activity to pre-COVID levels last seen in the second half of 2019.
The number of transactions last month was 21.7 per cent below the record set in May 2021.
"Ultimately, this has been expected and forecast for some time – a slowdown to more normal levels of sales activity and a flattening out of prices," CREA senior economist Shaun Cathcart said in a statement.
"What is surprising is how fast we got here. With the now very steep expected pace of Bank of Canada rate hikes, and fixed mortgage rates getting way out in front of those, instead of playing out steadily over two years, that cooling off of sales and prices seems to have mostly played out over the last two months."
The Bank of Canada has embarked on an aggressive path to tighten monetary policy in the wake of skyrocketing inflation, which has sent borrowing costs up for Canadians.
BMO senior economist Robert Kavcic said in a research note on Wednesday that "a correction in Canadian housing is well underway across a number of markets."
"Prices will likely be under pressure into next year," Kavcic wrote.
"Eventually, fundamental factors like demographics and rising building costs will put a floor under the resale market, especially in more favourable areas, but it will take time and some price discovery to swallow the interest rate shock."
CREA says sales were down in 75 per cent of all local markets, including B.C.'s Lower Mainland, the Greater Toronto Area (GTA), Ottawa, Edmonton and Calgary.
After stripping out sales in the GTA and Vancouver, Canada's two hottest housing markets, the average national price for a home was $588,500.
The MLS Home Price Index (HPI), which CREA says is a more accurate price comparison than the median or average price, fell by 0.8 per cent on a monthly basis, following a 1.1 per cent decline in April.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.