OTTAWA, June 5 (Reuters) - New listings of Toronto homes surged in May from a year earlier while sales plunged and price gains slowed slightly in the wake of new housing rules aimed at cooling the market in Canada's largest city, the Toronto Real Estate Board said on Monday.
The industry group said the average home price rose 14.9 percent in May from a year earlier, well below the pace of gains seen in recent months, while new listings jumped 48.9 percent and sales fell 20.3 percent.
The sharp shift in the Toronto market comes after a 15 percent tax on property purchases by foreign buyers was introduced in April as part of 16 measures designed to cool the market due to fears of a bubble.
The real estate group said it was too early to say whether the surge in new listings was in response to the new rules or simply sellers responding to the recent surge in prices, or whether the rise in listings or drop in sales will be sustained.
"In the past, some housing policy changes have initially led to an overreaction on the part of homeowners and buyers, which later balanced out," Jason Mercer, TREB's Director of Market Analysis said in a statement.
"On the listings front, the increase in active listings suggests that homeowners, after a protracted delay, are starting to react to the strong price growth we've experienced over the past year by listing their home for sale to take advantage of these equity gains," he added.
The report showed sales of detached homes led the overall drop in demand in May, falling 26.3 percent from a year earlier, while sales of condominium apartments were down by 6.4 percent.
Still, the industry group said inventory remains low despite the surge in new listings and the decline in sales because supply had dropped to a 15-year low in 2016 and it will take time for new listings to rebalance the market.
"At the end of May, we had less than two months of inventory. This is why we continued to see very strong annual rates of price growth, albeit lower than the peak growth rates earlier this year," TREB President Larry Cerqua said in the report. (Reporting by Andrea Hopkins; Editing by James Dalgleish)