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Homes on Sherman Brock Circle in Newmarket, Ont.Fred Lum/the Globe and Mail

Canadian home sales dropped in March and prices fell in some of the country’s hottest markets, as borrowing became more expensive after the Bank of Canada raised interest rates.

The number of resales decreased 5.4 per cent from February to March on a seasonally adjusted basis, with the sharpest drops in Calgary and the Toronto region, according to the Canadian Real Estate Association, or CREA.

“March definitely saw a slowdown compared to February in terms of both activity and price growth,” Jill Oudil, chair of CREA, said in a press release. Though Ms. Oudil cautioned that it was too early to say whether the country’s real estate rally was starting to end. “One month does not make a trend, so we’ll have to wait and see if this is the beginning of the long-awaited cooling off of this market,” she said.

The home price index, which tracks the price of a typical home and adjusts for pricing volatility, fell from February to March by low single-digit percentages in regions across southern Ontario such as Brantford, Cambridge, Kitchener-Waterloo and Hamilton-Burlington.

In other parts of the country where home prices have jumped by more than 50 per cent in two years, the home price index was up by a single percentage point, if at all. Overall, that contributed to the country’s slowest home price growth in six months.

Nationally, the home price index was up 1 per cent to $874,100 from February to March on a seasonally adjusted basis, according to CREA. That was down from the record 3.5-per-cent increase from January to February.

Compared with March of last year, however, the home price index is up 27.1 per cent. Over the same period, the number of home resales is down 16 per cent, while new listings have fallen 10 per cent.

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Realtors say homes are taking longer to sell and that previous marketing tactics are no longer working. That includes underpricing properties and setting a date for offers in hopes of triggering a bidding war. Now realtors say that homes are not fetching as many bidders, and home sellers are not getting the prices they were expecting.

“A lot of these sellers have not come to terms with reality yet,” said Odeen Eccleston, president of real estate brokerage and developer Wiltshire Group in Toronto. “It looks like they’re not going to be getting the same numbers that their neighbours and counterparts obtained,” she said.

In the first two months of this year, houses in the Toronto suburbs were drawing dozens of bids with some selling for hundreds of thousands of dollars more than the asking price. Today, properties are not generating the same level of interest.

In York region, one of the suburbs where the typical home price has risen 70 per cent in two years , Ms. Eccleston said she has observed similar properties selling for $200,000 less than in February.

“It’s the same subdivision, same builder, same five-bedroom model and similar levels of upgrades,” said Ms. Eccleston, who has sold homes in the Toronto region for 15 years.

Activity is expected to wane further this year after the central bank raised its benchmark interest rate twice in two months. The bank has indicated it intends to continue to raise interest rates, which will continue to push up borrowing expenses for would-be buyers.

The cost of a fixed-rate mortgage, where the interest rate does not change over the term of the loan contract, has doubled in about a year, according to mortgage brokers, with the popular five-year fixed mortgage now above 4 per cent. Economists predict that the rise in interest rates will temper demand and lead to dip in prices.

“With the Bank of Canada set to hike rates aggressively, home sales are likely to trend even lower,” Rishi Sondhi, an economist with Toronto-Dominion Bank, said in a note, adding that this will “weigh on price growth.” Mr. Sondhi expects the average home price to fall incrementally in the latter half of the year.

Phil Soper, chief executive officer of Royal LePage, said there are signs that the real estate market is starting to calm down after nearly two years of frenetic bidding wars. Mr. Soper said multiple offer situations are dropping and the gap between the asking price and selling price is narrowing. “It’s getting easier to price properties,” he said.

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