Canada's housing market showed more signs of a rebound in May, with the national average residential price reaching its highest monthly level on record, the Canada Real Estate Association said Monday.

Driven by price gains in some of the most expensive markets in the country, the national average resale price rose to $319,757, up 0.4 per cent from the previous record set in May 2008.

CREA said that over the past four months, the national residential average price has recovered 16.4 per cent from the low in January.

New record high prices were also seen in Saskatchewan, Ontario, Quebec, New Brunswick, and Nova Scotia.

“Fueled by a string of monthly increases in activity, the number of transactions in May reached the highest point since July 2008,” said CREA chief economist Gregory Klump.

“Inventory levels are still high in many markets, but fewer new listings and rising sales activity suggests that the selection of homes available for sale may shrink as the year progresses," Klump said.

The supply of homes up for sale needs to be drawn down further before average price increases become more widespread among local markets.”

On a seasonally adjusted basis, home sales rose eight per cent to 37,649 units in May from April.

"This marks the fourth consecutive monthly increase in seasonally adjusted activity," CREA said. "Seasonally adjusted activity in May was 43 per cent above where it stood in January 2009."

BMO Capital Markets economist Douglas Porter said low borrowing costs, more affordable prices in many markets and some pent-up demand after the slow fall and winter period have given support to the market.

"However, even with these positives, further gains will be much tougher to come by, especially with employment continuing to sag," Porter said. "The housing market is not about to go off to the races, even if it has been pulled back from the brink."