Sales of existing homes in Canada during the first quarter reached its highest level in a year due mostly to the voracious demand for houses in Vancouver and Toronto.

Demand for homes ahead of a change in mortgage rules pushed the sale of existing homes to their highest level in a year. (Darren Calabrese/The Canadian Press)

The Canadian Real Estate Association said seasonally adjusted national sales activity in the first quarter was up 4.5 per cent over the previous quarter, and reached the highest quarterly level in a year as national sales in each of the first three months ran close their five- or 10-year monthly averages.

The association said most of the quarterly increase was due to demand in Vancouver and Toronto. A change to mortgage regulations on March 18 may have pushed up the sale of a number of homes in some of Canada's more expensive housing as sellers looked to "tradeup" before the changes took effect.

New mortgage rules announced by the Finance Department in January and took hold last month made the maximum payback period 30 years — resulting in somewhat higher regular payments than with the 35-year amortization that has been the choice of about 30 per cent of home buyers.

The rule changes increases the monthly payment on a $300,000 mortgage at four per cent interest by $105, but also reduces total interest paid by $42,288 over the life of a mortgage because it is repaid five years sooner.

The rush to buy in advance of the changes caused an artificially high price for newly listed homes as the national average price was skewed higher by strong activity in a few pricey areas of Greater Vancouver where the activity focused on condo sales. In March alone, house prices jumped 8.9 per cent year-over year.

"A record number of multi-million dollar property sales in Richmond and Vancouver West are pushing up average prices for Greater Vancouver, British Columbia and nationally," Gregory Klump, CREA's Chief Economist, said in a release.

If Vancouver is excluded, the national average price gain was cut in half to about 4.3 per cent.

But Klump said the impact of the mortgage changes are likely to be "minor over the near term." Instead, he said the widely expected view that the Bank of Canada will not raise interest rates until at least July "is supportive for resale housing demand, market balance and prices."

The central bank held its key lending rate at one per cent earlier this week.

Rates steady

"With the rush-to-buy ahead of the mortgage rule change concentrated in the Vancouver area, and that region also leading the price increase at the national level, the area remains a key wild card to watch in the coming months," said Leslie Preston, an Economic Analyst, at TD Economics.

"But apart from that region, the housing market remains in a well-balanced position on the whole, and with activity likely to ebb as interest rates start rising in July, we don't see home prices outpacing inflation over the next couple of years."

Meanwhile, seasonally adjusted national home sales activity in March was a tenth of a percentage point above levels for the previous month, with stable demand in most large urban centres, CREA said.

Inventory, a key real estate metric that measures the number of months it would take to sell the entire housing stock at the current sales pace, stood at 5.6 months at the end of March on a national basis, little changed from the previous month.