06/15/2012 11:07 EDT | Updated 08/15/2012 05:12 EDT

Average home price inched lower in May

The average price of a Canadian home sold in May shrank by 0.3 per cent to $375,605, the Canadian Real Estate Association said today.

Although prices were lower, the number of homes sold came in nine per cent higher compared to the same year-ago period.

That increase "continues to reflect the slowdown in sales a year ago following changes to mortgage rules that came into effect in March 2011," CREA said.

While the national average price is more or less flat compared to last spring, average sales prices were up from year-ago levels in about seven of every 10 local Canadian markets, the agency said.

"Activity in Greater Toronto is stronger this spring than it was last year, and higher-priced homes are still selling quickly," said Gregory Klump, CREA's chief economist. "It is still the biggest factor boosting the national average price."

Despite the slight decline in the average price, CREA upwardly revised its expectations for prices for the year on Friday. The real estate body now expects the average price to be 2.2 per cent higher this year, up from a 1.1 per cent annual decline the last time they had a forecast.

"CREA’s forecast for annual activity this year has been boosted by what’s already in the rear-view mirror," Klump said.

Continued overall strength in the housing market, largely due to the staying power of low interest rates, has led some economists to warn that the market is overvalued.

That could make homeowners vulnerable to a downturn, especially those who have used low interest rates to borrow more than they could otherwise afford.

Homebuyers seem to be heeding those warnings, Bank of Montreal economist Robert Kavcic wrote in a report Friday.

"Overall, most indications point to a balanced and well-behaved housing market that has clearly mellowed," he wrote in a report.