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Driven by historically low interest rates, Canadian banks have been increasing dependence on real estate lending to drive earnings, with residential and non-residential mortgage assets totalling $955 billion at the end of March, or 26% of total assets, according to OSFI data. That’s up from $521 billion five years earlier, which represented 20% of assets at the time.

Fading Impact

The impact of Flaherty’s policy changes are beginning to fade, Toronto Real Estate Board President Ann Hannah said in Wednesday’s release.

“A growing number of households who put their decision to purchase on hold as a result of stricter lending guidelines are starting to become active again in the ownership market,” Hannah said.

The average sale price rose to $542,174, from $514,567 a year ago, while a composite home benchmark price index for the city was up 2.8%, the Toronto Real Estate Board reported. Unit sales dropped 3.4% from a year earlier to 10,182, the board said in an e-mailed statement Wednesday.

The decline in Toronto sales was led by condominiums and townhouses, while purchases of detached homes rose in May. Prices were up in all categories of homes.

On a year-to-date basis, Toronto sales are down 9.6%.

‘Weaker Volumes’

“The story continues to be one of weaker volumes,” Derek Holt, vice-president of economics at Toronto-based Scotiabank, said in a note to investors. “The question is how that will carry over into construction and prices.”