Existing home sales dropped 1.3% in June from the month before and were down 4.4% from the year before, suggesting that Canada’s housing market was already cooling before Ottawa tightened mortgage rules.

The national average home price in June was $369,339, down 0.8% from the same month last year, Canadian Real Estate Association reported Monday.

“Even before the new mortgage rules kicked in, all signs suggest that the Canadian housing market was already cooling—the new rules will simply pull hard on a closing door,” said Douglas Porter, deputy chief economist at BMO Capital Markets.

The new rules “will chill a market that had already seen 16 of 26 markets post June sales drops. Vancouver is leading the way down, but four Southern Ontario cities also reported double-digit sales declines.”

Finance Minister Jim Flaherty announced stricter mortgage lending rules in June because of concern of a possible housing bubble, particularly in the condominium sector in Toronto — and rising household debt.

Under the rules that went into effect last week, borrowers will be allowed to use up to 80% of their property’s value as collateral for home-equity loans, down from 85%.

In addition, the maximum amortization period dropped to 25 years from 30 years for government insured mortgages.

Flaherty also said government-backed mortgage insurance will be limited to homes with a purchase price of less than $1 million.

Canada’s housing market lost a little altitude in June, but it’s still flying pretty high

Gregory Klump, CREA’s chief economist, said home buyers didn’t rush to make purchases before the latest restrictions on mortgage regulations came into effect in July.

“That’s a big change compared to what we saw as a response to previously announced changes,” Klump said.

“It will take some time before the compound effect of previous and recent changes to regulations on Canada’s housing market becomes apparent.”

Big regional divergences persist in the housing market, said Porter. Toronto prices are up 6.8% year over year, while Vancouver, whose 13.3% slide was the only double-digit drop in Canada, has become a buyers’ market.

Calgary is the strongest market, with sales up 16.7% in the past year, one of only three markets reporting double-digit sales gains.

There have been several reports saying some real estate markets and some types of housing are over valued, although there’s a range of opinions about how much and how quickly prices will decline.

Economists and consumers have been closely watching for signs that demand has softened to the point where prices will start going down.

But the association, which represents real-estate boards and associations that handle most of the country’s property transactions through the MLS system, said Monday the decline in sales activity and an increase in new listings resulted in a “more balanced” national housing market in June.

“Canada’s housing market lost a little altitude in June, but it’s still flying pretty high,” association president Wayne Moen said in a news release.

“That said, sales activity and average prices bucked the national easing trend in a number of markets, which underscores that all real estate is local,” Moen said.

The number of newly listed homes rose 1.4% in June compared to May, led by the Toronto market. Some 42 local markets, out of 100 markets across the country, registered a monthly increase in new listings of at least 1%, the association said.

RBC senior economist Robert Hogue noted the resale market eased again in June but the number of homes newly listed for sale rose 1.4% last month.

“Market conditions, therefore, eased a little, providing more breathing room for Canadian buyers,” Hogue said in a research note.

“Despite this easing, the demand-supply equation continued to be balanced in the majority of markets in Canada. The previously tight Toronto market became much more balanced, whereas the Vancouver market inched closer to conditions favouring buyers,” Hogue said.

In the first half of 2012, a total of 257,193 homes traded hands over Canadian MLS Systems, up 4.7% from the same period in 2011.

With files from Canadian Press