10/15/2012 10:26 EDT | Updated 12/15/2012 05:12 EST

Home sales drop 15% in September as prices edge higher

The average price of a Canadian home inched 1.1 per cent higher to $355,777 in September, even as the number of homes sold fell precipitously.

The Canadian Real Estate Association's monthly sales data released Monday show the volume of home sales across the country was 15.1 per cent lower in September 2012 compared to the same month a year earlier.

More than half of all local markets posted declines of at least 10 per cent, CREA said.

"New mortgage rules continue to keep a lid on national sales activity," CREA president Wayne Moen said in a release.

“In the shadow of the latest mortgage rule changes, activity has ratcheted down from higher levels seen during the fourth quarter last year," CREA chief economist Gregory Klump added.

In July, the federal government capped the maximum length for an insured mortgage at 25 years, making it harder to qualify for a mortgage and likely to squeeze new buyers out of the market and let the air out of price gains.

That's exactly what's happening, CREA says.

"While some first-time homebuyers may no longer qualify for mortgage financing under the new rules, it is likely that many others are stepping back and reassessing how much house they can realistically afford, which is one of the things new mortgage rules were designed to do."

At various times over the past 18 months, CREA has warned that the national average price has been artificially skewed higher or lower because of activity in Canada's two largest housing markets — Toronto and Vancouver.

Vancouver drags prices lower

That was once again the case in September, as CREA said fewer sales in Greater Vancouver this year compared to much stronger levels last year dragged the average lower.

The Vancouver market currently represents about five per cent of all home sales in the country.

If Vancouver is stripped out of the equation, the national average would have shown a year-over-year increase of 3.4 per cent.

"While most major markets are recovering from previous price declines, the average price in Toronto hit a new record high of $509,700," Toronto-Dominion Bank economist Francis Fong said in a note.

"The Canadian housing market has clearly lost some of its lustre," he notes, adding that he does not expect a widespread national correction. "The bulk of the correction will be concentrated in markets we feel are particularly overvalued, such as Toronto and Vancouver," he said.