OTTAWA -- Home sales across the country dropped sharply last month, driven by a plunge in the Greater Toronto Area (GTA) after the Ontario government imposed a tax on foreign buyers aimed at cooling the red-hot market.

The number of residential properties sold nationwide fell by 6.2 per cent in May compared to April, the largest month-to-month decline in nearly five years, the Canadian Real Estate Association said Thursday. The industry group, which represents real estate agents, brokers and salespeople in Canada, noted sales were down a whopping 25.3 per cent month-over-month in the GTA.

The data showed that while real estate may be local, the impact of changes in a market the size of Toronto can have a sweeping effect nationally.

"This is the first full month of results since changes to Ontario housing policy made in late April. They provide clear evidence that the changes have resulted in more balanced housing markets throughout the Greater Golden Horseshoe region," CREA chief economist Gregory Klump said in a statement.

"For housing markets in the region, May sales activity was down most in the GTA and Oakville. This suggests the changes have squelched speculative home purchases."

The Ontario government introduced more than a dozen measures, including a 15 per cent tax on foreign buyers, aimed at stabilizing Toronto's blistering housing market. Prices have spiralled out of reach for many potential homebuyers both in and on the outskirts of the city.

Sal Guatieri, a senior economist with BMO Capital Markets, said while the rules have had an effect, they merely brought back "some semblance of normalcy after a manic winter" that will likely be short-lived.

"Given the strong economic, demographic and financial backdrop, don't expect the GTA market to stay down for the count," Guatieri said in a note to clients.

"Policy tinkering will do little to cool demand on a sustained basis. Time to take out the heavy artillery: higher interest rates. The ball is now firmly in the Bank of Canada's court."

The central bank has dropped hints that the era of historically low interest rates may be coming to an end. Just this week, governor Stephen Poloz said cuts to the benchmark rate have "done their job" as the economy builds momentum, a statement that some market watchers have interpreted as a sign that a hike could be six to 12 months away.

In the closely watched Vancouver market, sales were up by 22.8 per cent month-over-month. There are concerns that the city may be returning to bubble territory less than a year after the British Columbia government instituted a tax on foreign buyers of properties in the Vancouver area.

Nationally, the average price for all homes sold last month was $530,304, pulled up by Toronto and Vancouver, where it was $863,910 and $1,110,376, respectively.