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TORONTO (Reuters) - Canada's post-recession property boom is displaying fresh signs of weakness, impeded by recent government mortgage-rule changes, with sales volumes dropping even as average prices rise, industry reports released on Wednesday showed.
A survey by Royal LePage Real Estate, one of Canada's biggest real estate agencies, showed that although most cities experienced modest price appreciation in the third quarter, fewer homes were sold than in the same period in 2011.
Royal LePage said this suggests a tipping point in the market.
"A drop in the number of homes trading hands typically precedes a period of softening house prices," Royal LePage Chief Executive Phil Soper said in a statement. "Where there is reduced demand, those who want to sell their homes adjust their asking price to stimulate interest."
The average price of a resale home in Canada increased 1.8 percent for condominiums and 4.8 percent for detached bungalows year over year, Royal LePage said.
In Vancouver, which has been Canada's most expensive market, average prices posted modest decreases, particularly for condos.
In Toronto, average house price gains ranged from 2.7 percent to 5.9 percent, while demand fell modestly. Royal Lepage noted that multiple offers are still common in the Toronto area, especially for detached bungalows and standard two-storey homes.
Mindful of the U.S. housing market crash that triggered the global financial crisis, Canadian Finance Minister Jim Flaherty in June tightened rules on government-backed mortgages for the fourth time in four years.
Analysts had expected that the tighter rules implemented in July would help cool a heated market and curb worrisome levels of household debt. But some now worry the changes may have gone too far and there is risk a U.S.-style housing crash.
Some economists have forecast a price correction of between 10 percent and 15 percent, while more bearish analysts see a 25 percent drop in prices, similar to what happened in the 2009 U.S. housing collapse.
Data released last month by the Canadian Real Estate Association showed existing home sales in Canada suffered their biggest month-over-month decline in more than two years in August.
Still, many economists argue that Canada stands to weather a housing slowdown better than the United States.
"Canada's insulating strengths are excellent strength in corporate balance sheets including bank capital ratios, and vastly stronger micro-foundations to its mortgage market than is the case in the United States and parts of Europe," Scotiabank economists Derek Holt and Dov Zigler said in a note to clients.
A separate report from the Toronto Real Estate Board on Wednesday showed the average selling price in Canada's largest city rose more than 8.5 percent to C$503,662 ($508,749) in September from the same month last year, but sales were down by 21 percent.
"While sales have been lower due to stricter mortgage lending guidelines, we continue to see substantial competition between buyers," board President Ann Hannah said in a statement.
"The months of inventory trend remains low from a historic perspective, which explains the strong price increases we are experiencing."
Prices of condos - which have been under the most scrutiny for evidence of a bubble - rose 8 percent year over year in September. Sales of condos were down 27 percent year over year for both the city of Toronto and the Greater Toronto Area.
Editing by Peter Galloway and Jeffrey Hodgson