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File photo of houses and lots for sale in Halifax.Sandor Fizli/The Globe and Mail

The Globe's Real Estate Beat offers news and analysis on the Canadian housing market from real estate reporter Tara Perkins. Read more on The Globe's housing page and follow Tara on Twitter @TaraPerkins.

There are some tentative signs that Halifax's housing market is showing signs of life in the wake of a lengthy slump.

The city saw home prices rise 3.1 per cent in May, the largest monthly gain in its history, according to the Teranet-National Bank home price index. That comes after a 0.7 per cent increase in April.

Prices are still lower than they were a year earlier, but there is some optimism that the increase could mark the start of a turnaround.

"The last six to eight months have been one of the slowest periods we've had in some time, but it started to turn around about a month and a half ago or two months ago and we are seeing now a return to a more normal spring market, although it's late and less than what we usually would have," says Al Demings, a realtor with Re/Max.

Sales of existing homes in the Halifax-Dartmouth area fell 16.9 per cent last year, and the number of homes that sold in May remained 17.2 per cent lower than a year earlier, according to the Canadian Real Estate Association. May's sales were also 1.9 per cent less than April's on a seasonally-adjusted basis.

The average sales price, $290,587, rose 1.8 per cent from May of 2013, and was up 1.6 per cent from April on a seasonally-adjusted basis.

Bill McMullin, a local realtor and the CEO of ViewPoint Realty, says that there was a significant spike in sales in 2012 followed by a significant drop in 2013, and a continued albeit smaller decline so far in 2014.

"We have a standoff situation in the marketplace where there's a massive amount of inventory from sellers who clearly do not need to sell their houses, because they're not responding to the softened demand by reducing prices," he says.

I asked Mr. Demings to outline the key factors that he believes have been weighing on Halifax's market. Here's what he says, in no particular order:

1. The federal government announced in late 2011 that Halifax Shipyard had won a $25-billion contract to make combat ships for the navy over two decades. At first, local residents thought the deal would end the shipbuilding industry's boom and bust cycle. But then there were short-term layoffs and it became clear that much of the work from the contract was years down the road. "The contact hoopla a couple of years ago created a euphoria, and an activity level that was not sustainable," Mr. Demings says. "Subsequently, we wound up with potential buyers and sellers sitting back and waiting to see what was going to happen. And we're probably six months to a year away from seeing them really come back, but at least it's worn off now. We're back to a little more activity."

2. He believes that first-time buyers were hit pretty hard by the tighter mortgage insurance rules that former Finance Minister Jim Flaherty imposed in July 2012. Those rules included cutting the maximum length of an insured mortgage to 25 years from 30. "That took many first-time buyers out of the market. And they're a catalyst," Mr. Demings says. "When a first-time buyer buys a home that frees up the selling homeowner to trade up, there's a ripple effect. And that was really missing from our market the last while. Now that we've gone a year and a half or so past those regulations, the first-time buyers who have saved a little money are now starting to come back in. So that's one of the reasons we're starting to see improvement."

3. Downsizers are renting. "Unlike most of the country's major centres, where the people downsizing tend to buy condominiums or smaller properties, we're one of the few areas where the trend has been that they're renting instead of buying," he says. "The reason is we have a pretty significant supply, if not an oversupply, of newer condominiums coming on the market and the developers and owners have tended to rent those out because you can actually rent a unit quite a bit cheaper than you can buy one at this stage with carrying costs and that."

4. He says the military transfer season was delayed this year. "Plus, the new policies in the last couple of years have been that when somebody is transferred in the military they can't go buy a home until they get an offer on the home they're leaving. So instead of making a busy early spring market, that spreads it out for a longer period of time. Twenty per cent of our market, rough estimate, is based on relocation – whether that's military or because we're a very large regional centre for offices and government."

All told, Mr. Demings predicts that this year will not be as strong as historical trends, but that sales levels should be up a bit from last year. "I think we're probably a year away from a really strong market, and that's when the ship building program ramps up, then I think we'll be back to more normal terms," he says. In its forecast released in June, the Canadian Real Estate Association predicts that Nova Scotia's sales will fall by 5.1 per cent this year compared to last before rising 4.8 per cent in 2015. It expects average prices to tick down by 0.8 per cent this year and tick up 0.6 per cent next year.