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Photos of various condominiums located in the Bathurst St. and Fort York Blvd area of Toronto are photographed on Feb 27 2013. (Fred Lum/Globe and Mail)Fred Lum/The Globe and Mail

Low interest rates have failed to jump-start the housing market, as sales in major Canadian cities in March fell sharply below where they were last spring.

Despite a series of mortgage-rate promotions offering five-year loans at less than 3 per cent, sales of existing homes in the Toronto area slumped 17 per cent in March from a year earlier, while Vancouver sales sank 18 per cent. Calgary, which is expected to show a rise in sales this year, has also posted a small decline during the month.

The numbers are likely to add new fuel to the debate over Ottawa's moves to cool down the housing market and prevent Canadians from taking on too much mortgage debt. Finance Minister Jim Flaherty took the extraordinary step last month of scolding banks for advertising lower rates, causing one lender, Manulife Bank, to withdraw a special offer of five-year mortgages at 2.89 per cent. That followed a number of formal measures the government has taken to slow the acceleration in home prices.

Economists and real-estate professionals are keeping a close eye on sales during the crucial spring market to determine whether Ottawa will be successful in its bid for a so-called soft landing.

Though they also cautioned that one month is not necessarily a sign of how the year will play out.

"I still think that on a national basis we will see signs of a stabilization in home sales and prices this year," said Toronto-Dominion Bank chief economist Craig Alexander.

Home sales have been falling since Mr. Flaherty tightened the mortgage insurance rules last July, including cutting the maximum amortization on insured mortgaged to 25 years from 30. Economists estimate that those changes were equivalent to an interest rate hike of almost 1 per cent, and real estate industry players say the moves knocked a number of first-time buyers and speculators out of the market. The question is whether activity will pick up as the impact of those rules wears off while rates remain low, Mr. Alexander said. He does not expect interest rates to rise before late 2014.

Toronto and Vancouver, where the markets had become frothy, are cities that policy makers are watching closely.

The Toronto Real Estate Board said that 7,765 homes changed hands over the Multiple Listing Service last month, down 17 per cent from a year earlier. Condo sales fell more than 18 per cent, and sales of detached homes slid by nearly as much. But condo prices were 1.7-per-cent higher than a year ago, and detached home prices rose 4 per cent.

"The sector that seems to be impacted the most is marginally qualified first-time buyers, and people have gone away completely from the real estate investment space," said Toronto-based mortgage planner Calum Ross. "But typically the results for a spring market don't come into play until after spring break and Easter, and I still believe that, given interest rates, there will be an uptick."

In the Vancouver area, buyers played a waiting game last month while sellers held out for more. There were 2,347 resale properties sold in March, down 18 per cent from 2,874 sales a year earlier. The benchmark index price slipped 3.9 per cent year-over-year to $593,100, according to the Real Estate Board of Greater Vancouver. Sales volume in March hit the second-lowest level for that month since 2001.

"Do people want to have things more buoyant? Sure, but there isn't alarm. This is a market that is stable and reflects a normalization of market conditions. There isn't panic by any means," said Anne McMullin, president of the Urban Development Institute's Pacific region.

Condo prices in March decreased 0.9 per cent year-over-year on Vancouver's east side to $304,900, but slumped 13.5 per cent to $211,900 in the resort community of Whistler, while single-family detached home prices declined 9.1 per cent on Vancouver's west side to $2-million.

Jock Finlayson, executive vice-president of the Business Council of British Columbia, said the Vancouver region's real estate market could be soft for at least another year. "But I don't see a crash because that would take some kind of shock to the economy like a sudden spike up in interest rates or a dramatic downturn in the Canadian economy," he said.

In the B.C. Fraser Valley, 1,128 resale properties were sold in March, down 20 per cent from 1,412 sales a year earlier.

The home index price, which strips out the most expensive properties, was $425,100 last month, up a slight 0.1 per cent from March of 2012. The Fraser Valley includes the sprawling and less expensive Vancouver suburb of Surrey.