The latest monthly figures from the Canadian Real Estate Association showed that sales volume was down 16.9 per cent in February compared with a year ago, and down 6.5 per cent compared with January.
February's home sales decline marked the second consecutive month-over-month decline and the lowest reading in nearly five years, the national association said.
“The drop off in sales activity following the record-breaking peak late last year confirms that many homebuyers moved purchase decisions forward late last year before tighter mortgage rules took effect in January,” said Gregory Klump, CREA’s chief economist in a statement Thursday.
The federal banking regulator's tougher rules, which took effect Jan. 1, now require a stress test to be applied even to borrowers with more than 20 per cent down payment.
To qualify for federally regulated mortgages, borrowers must be able to afford interest rates that are two percentage points above the contracted rate or the Bank of Canada's five-year benchmark rate, whichever is higher.
The stricter residential mortgage lending regulations introduced by the Office of the Superintendent of Financial Institutions were aimed at reducing risk in the market amid high housing prices.
CREA's latest monthly statistics show that home sales were down in February in almost three quarters of all local housing markets tracked by the national association.
The widespread pattern was yet another indication that recent regulatory changes, and not local market conditions, were behind softer sales activity in early 2018, said RBC economist Josh Nye.
"The roller coaster ride that was Canada’s housing market in 2017 has continued this year with resales posting another sizeable decline in February," he said in a research note.
The number of homes sold nationally hit a record high in December.
But homebuying activity has also since been dampened by the Bank of Canada's move in January to hike interest rates to 1.25 per cent. The quarter-point increase was the central bank's third since last summer, after hikes in July and September.
"While the give-back related to the pull-forward in activity experienced late last year, as buyers rushed to close deals prior to the updated B20 rules, appears to have been largely complete in January, the softness in sales nonetheless persisted this month," said TD economists Michael Dolega and Rishi Sondhi in a research note.
"We believe that much of it has to do with lingering uncertainty, with additional regulations introduced in the B.C. budget adding further tensions, along with B20 impacts and rising rates."
In February, the B.C. government unveiled additional measures in its budget to tackle the housing market, including raising its foreign buyers tax and expanding it to areas outside of Vancouver, while bringing in a new levy on speculators.
The national average house price for homes sold in February 2018 was just over $494,000, down five per cent from a year earlier. But excluding Toronto and Vancouver, the country's most active and most expensive markets, the national average price was just under $382,000, up 3.3 per cent from $369,728 a year ago.
The number of newly listed homes in February increased by 8.1 per cent, following a plunge of more than 20 per cent in the month prior. However, new listings across the country in February were still 6.4 per cent below the 10-year monthly average and 14.6 per cent below the peak reached in December 2017. New home listings in February were also below the levels recorded every month last year except January 2017.
TD's Dolega and Sondhi point to these listings as some of the "modestly encouraging details" in the latest CREA report.
"New listings also perked up a little during the month, suggesting rising confidence on the part of sellers after recent B-20-related volatility," they wrote.
The TD economists expect sales activity to stabilize sometime in mid-2018.
"We look for prices to drop, on average, this year, though balanced-market conditions across much of the country should mitigate the magnitude of the decline," they wrote.
"We expect conditions to improve next year, with price growth returning to the market alongside a rise in transaction activity."