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Homes for sale in Toronto's Rosedale area June 13, 2012.

Moe Doiron/Moe Doiron/The Globe and Mail

A red hot Toronto real estate market drove the home price index up 5.2 per cent in May compared with a year ago, the Canadian Real Estate Association said Friday.

The association said gains in Toronto amounted to 7.93 per cent, outpacing all the other regions measured by the index.

Calgary was second with a gain in May of 4.84 per cent compared with a year ago, while the Greater Vancouver area gained 3.28 per cent.

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"Home price gains in Greater Toronto continue to eclipse those in other markets," CREA chief economist Gregory Klump said.

"Gains are also starting to pick up speed in Calgary after months of stability."

The report came a day after Finance Minister Jim Flaherty moved to tighten mortgage lending rules for the fourth time in as many years.

Among the changes, Ottawa cut the maximum amortization period for government insured mortgages to 25 years from the current 30 years and limited how much homeowners can borrow on the value of their homes to 80 per cent from 85 per cent.

In making the move, Mr. Flaherty cited the red hot condominium market in Toronto as a concern.

The minister and Bank of Canada governor Mark Carney have both repeatedly raised concerns about the amount Canadians are borrowing and the risk to the economy household debt poses.

The danger is in what will happen when interest rates start to rise from historic lows and the interest costs on the debt held by Canadians starts to increase.

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BMO senior economist Sal Guatieri said the CREA report provided the government with further validation of its move to tighten the mortgage lending rules.

"By our estimate, to neutralize the impact on mortgage payments of the amortization rule change, average home prices would need to fall by about four per cent," he said.

"By helping to cool the market now, the rule changes should increase the odds of a soft, rather than hard, landing."

The index is based on prices for one- and two-storey single family homes, townhouses and apartments in several key markets across Canada.

The price of two-storey single family homes was up 6.7 per cent, while one-storey single family homes were up 5.8 per cent. Townhouses and apartments saw more modest gains of 3.3 per cent and 2.95 respectively.

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