Fears of higher mortgage rates are driving strong sales in a housing market that was on the ropes just a year ago.

August sales numbers hint at a Canadian market that has "shades of taking flight again," said Bank of Montreal economist Sal Guatieri. But observers suspect the upward trajectory will ultimately be flattened by rising rates, which have prompted many buyers to jump in sooner than they otherwise would have.

The Toronto area saw a 21-per-cent jump in the number of existing homes that changed hands last month, compared with a year earlier; Vancouver a 52.5-per-cent surge; Calgary 27.5 per cent; Victoria 20.7 per cent; and Edmonton 9.9 per cent.

Story continues below advertisement

The average selling price of Toronto-area houses rose 5.5 per cent. The MLS Home Price Index, which adjusts for changes in the types of houses that are selling, gained 3.7 per cent in Toronto, but was down 1.3 per cent in Vancouver. The benchmark price of a single-family home in Calgary climbed by 7.4 per cent.

"I would definitely say it has to do with [mortgage] rates," Liam Kealey, a real estate agent with Re/Max in Ottawa, said of the 6.5-per-cent increase in sales in that city last month, which was above the five-year average.

Vancouver's home sales were slightly below the city's 10-year average for the month of August, while the 7,569 homes that sold in Toronto during the month came in above that city's 10-year average of 6,977.

Jamie Brow, a 24-year-old business owner, and his girlfriend Kerry Tait, a veterinarian, have been looking in Scarborough, Ont., for their first home since July. Their pre-approval for a five-year mortgage at 3.19 per cent will run out around the end of this month. They put in two offers for houses in their price range, under $500,000, in August, but both sold for much more than they were willing to pay.

"We'd like to use the rate we've been given and get something soon," Mr. Brow said, adding that he is resisting the urge to overpay for a house just to lock in his low rate. "I don't want to buy a house for over market value."

Last month's mortgage-rate hikes have "caused a surge of people who were sitting on the sidelines to sit up and take notice," said Mr. Brow's mortgage broker, Calum Ross.

He added, however, that it's important for buyers to do the math and not pay $25,000 more for a house to preserve a mortgage rate that saves $10,000. The 60-basis-point rate increase that has occurred of late would add an additional $2,400 in after-tax payments per year to a $400,000 mortgage, Mr. Ross noted.

Story continues below advertisement

Because pre-approvals tend to be for four months, those that were for less than 3 per cent will be running out around October, said True North Mortgage broker James Laird.

"If you're thinking of purchasing in the next six months to a year, and you have pre-approval at 2.8 per cent, there's clearly some incentive there to pull the trigger," he said. But he noted that five-year mortgage rates remain well below their historical average.

While rising rates are pushing people into the market now, rates will ultimately act as a drag on the market, said Toronto-Dominion Bank chief economist Craig Alexander. "We're going to see it cool off again as the higher mortgage rates actually have a bite," he said.

Mr. Alexander expects five-year rates will rise by about one-half of a percentage point next year, further tempering activity. He is forecasting relatively flat sales for a lengthy period, which would weigh on house price increases.

"Flat is ultimately the best outcome we could have in the market," Mr. Alexander added. "It's not terrible for sellers, but it's also good for buyers. And the fact that prices should rise more slowly than incomes should ultimately reduce some of the overvaluation that is present in some of the markets."

August's year-over-year sales numbers are also getting a boost from the fact that the market was plunging last summer. It was in July, 2012, that Finance Minister Jim Flaherty tightened the mortgage insurance rules, including cutting the maximum amortization of an insured mortgage to 25 years from 30, which led to a steep slump in sales.

Story continues below advertisement

Canadian Imperial Bank of Commerce economist Benjamin Tal said his sense is that activity in the housing market right now is too strong for the liking of policy makers. At the moment, the rebound in the market has spurred house price growth that is rising more quickly than consumer incomes.

The federal Office of the Superintendent of Financial Institutions, which regulates banks, is in the midst of a lengthy review of the mortgage market and is considering tightening the rules for lenders.