The Canadian housing market continued to cool last month, with the country's real estate association finding that home sales dropped about 22 percent from last year and about nine percent between April and May.

The Canadian Real Estate Association (CREA) stated that on a year-over-year and seasonally adjusted basis, sales reached 53,720, down from 68,598 in May 2021. Seasonally adjusted sales for the month were 42,649, down from 46,644 in April.

Sean Cathcart, CREA’s chief economist, said in a statement: "Ultimately this was expected, a slowdown to more normal levels of sales activity and a retreat in prices."

"What is surprising is the speed at which we got here."

This moderation came after warning bells about the insane rise in prices across the country at the start of the new year, prompting provinces and the federal government to look at a range of cooling measures.

Ontario, for example, increased the tax on non-resident home buyers to 20 percent from 15 percent in March and expanded the policy to cover the entire province instead of just the Greater Golden Horseshoe area.

But the most impactful of this was the rise in interest and mortgage rates, which economists attribute much of the calm to.

In the same context, Robert Kavcic, chief economist at BMO Capital Markets, said: "Canadians widely expected home prices to continue rising, which attracted investors and multiple-property buyers, while also causing many households to keep buying out of fear of missing out."

"But, starting from the first rate action taken by (the Bank of Canada), those market expectations began to unravel."

Real estate agents now note that potential buyers negotiate more than they were able to in previous months, while sellers are still grappling with how the market has changed, with some even pulling their homes off the market.

When Sarah Roshanbin, a real estate agent for Chestnut Park Real Estate Ltd in the Greater Toronto Area, tells her clients they can request a home inspection, they are pleased because most buyers had to drop this condition when the market was previously hot. Now this condition returns to about 50 percent of the offers on the homes she sells.

However, how sellers react to offers given the cold market situation shows "everywhere."

"Some now welcome them with open arms and say 'let’s work together on this and that'"

As a result, CREA found that May sales resemble activity levels seen in the second half of 2019, before the COVID-19 pandemic began, but sales were noted to be sharper in April.

May sales declined in three-quarters of all local markets, in multiple areas such as the Lower Mainland in British Columbia, Calgary, Edmonton, the Greater Toronto Area (GTA), and Ottawa.

The association now expects to change market rates for 568,288 properties this year, down 14.7 percent from the record 2021 number but still the second highest annual figure ever. It forecast sales to decline a further 2.8 percent to 552,403 homes in 2023.

However, there will be little comfort in prices.

CREA expects the national average home price to rise 10.8 percent year-over-year to $762,386 in 2022, anticipating the biggest gains from the Maritime provinces, Ontario, and Quebec. Then, the national average home price will rise another 3.1 percent to $786,282 in 2023.

The seasonally adjusted average price in May was $700,438, down nearly four percent from $728,171 in April.

The non-seasonally adjusted average price was $711,316, up about three percent from $687,595 the previous year.

Rishi Sondhi, an economist at TD Economics, interpreted the figures as meaning activity is "particularly sharply down" in the GTA, where investors played a big role this past year.

He wrote in a note to investors: "It’s also likely that some GTA buyers bought their homes before selling their old homes (believing the market would stay hot) and now have to accept lower prices to complete their transactions."

He added, "However, we expect this dynamic to play out in a relatively short time."

New listings rose 4.5 percent on a seasonally adjusted basis from 70,971 in April to 74,145 in May, with Montreal seeing an increase in new supply.

On a non-seasonally adjusted basis, total new listings were 100,643 last month, up more than six percent from 94,704 in May 2021.

Edited by: Dima Abu Khair