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Toronto's overheated housing market has cooled rapidly since the Ontario government announced a suite of new housing measures in April, with average prices dropping 6 per cent in May, while the number of homes sold fell by 12 per cent during the month.

The average sale price for all types of homes in the Greater Toronto Area was $863,910 in May, a drop of 6.2 per cent from $920,791 in April, according to sales data from the Toronto Real Estate Board (TREB). The price was still up 15 per cent compared with May, 2016, however, because of large price gains earlier this year.

The month-over-month price decline came as more homes were listed for sale in May, with new listings rising 19.4 per cent to 25,837 from 21,630 in April. New listings were up 49 per cent over May last year. At the same time, sales fell 12 per cent, with 10,196 homes selling in May compared with 11,630 in April. Sales were down 20 per cent from 12,790 in May last year.

For subscribers: Realtors see buyers pull back in Toronto market

Realtors say the Toronto market seems to be correcting from a huge rate of price growth earlier this year, but shows no signs of sliding into a real estate crash.

"In the first quarter, the market was not normal," said Christopher Alexander, regional director for Ontario and Atlantic Canada at Re/Max. "We had between 6,000 and 7,000 active listings for a district of over five million people, so prices were extremely high and it was fuelled by speculation, panic and low inventory.

"Now things are a bit more normal – we have lots more inventory, buyers have more to choose from, and they don't have to compete with 10 people to buy something, which is really nice because it gives them some breathing room."

The inventory of active listings of homes available for sale at the end of May was up 43 per cent to 18,477 listings, compared with 12,931 listings at the end of May, 2016, which was a 15-year-low at that time, TREB said.

However, TREB president Larry Cerqua said inventory levels are still low.

"At the end of May, we had less than two months of inventory," he said in a statement. "This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year."

The Ontario government introduced a new 15-per-cent foreign-buyers tax on April 20 and announced it would give Toronto powers to tax vacant properties as part of a suite of measures aimed at cooling the region's soaring housing prices. The measures came after average house prices climbed 33 per cent in March compared with a year earlier.

Canadian Imperial Bank of Commerce economist Bejamin Tal said he believes the Toronto market is cooling "under its own gravity," however, and the province's housing measures are only accelerating a trend that was already under way. He said it is ideal that the market is slowing without an external shock.

"I think that is exactly what the doctor prescribed – what we need is a slowdown that is not triggered by anything," Mr. Tal said.

He expects the price decline will be relatively short-lived before the market stabilizes, but it could take six months or a year.

"I don't think we have the trigger – namely a recession or higher interest rates – to get something crazy like a crash," he said. "This is a very healthy adjustment."

Realtor Chris Slightham, who heads Toronto-area brokerage group Royal LePage Signature Realty, said many buyers stepped back this spring to watch the impact of the province's foreign-buyers tax and other measures, while sellers jumped to list their homes at the peak of the market. He said some homes that may have been listed in the summer or fall could have been pulled forward to the spring as a result.

"We might have borrowed some inventory from the future," he said. "My feeling is that inventory should likely be stabilizing around here for a while, if we can take any indication from the Vancouver market and how it played out."

The market has particularly cooled this spring for detached homes, which saw a price drop of 5.3 per cent to an average of $1,141,041 in May, compared with $1,205,262 in April. The number of detached homes sold in May fell 17 per cent to 4,757, compared with 5,715 in April, while sales were down 26 per cent compared with May last year.

Bank of Montreal economist Robert Kavcic said the market is weakening most at the higher end.

His own analysis using seasonally adjusted benchmark prices – rather than market averages that are not seasonally adjusted – shows detached home prices fell in May compared with April, but semi-detached houses, condos and townhouses saw price increases.

"It is suggesting that more of the impact is at the high end of the market, which you would expect given the policy changes they made," he said.

He said Ontario's new tax is likely to have the greatest impact on detached homes at the higher end of the market where many foreign buyers shop.