Economists and realtors are seeing a return to normal in Toronto's housing market despite a fourth consecutive month-to-month decline in average home prices.

The Toronto Real Estate Board (TREB) reported that the average cost of a home in August — $732,292 (including all house types and condos) — was still up 3 per cent or about $20,000 compared to August 2016.

But that is still down about 20 per cent, or $187,000 lower than April, when the average price peaked at $919,086.

The number of housing sales in August also fell, 34.8 per cent year over year.

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But Doug Porter, chief economist at BMO Financial Group, who was among the first to use the term "bubble" to describe Toronto's soaring house prices in March, says the numbers are actually good news for consumers who expect to live in their homes for years.

"There are indications in these numbers — even though they look weak on the surface — that things are starting to stabilize," he said.

"Solid economic underpinnings," which prompted the Bank of Canada to hike interest rates a quarter point on Wednesday, will eventually shine through in the housing market, said Porter.

The increase in the overnight lending rate to 1 per cent, the second rise this summer, will affect some of the very short-term mortgage rates but won't make a big difference to the housing market immediately, he said.

Rates will slowly but surely climb, said the economist.

"After providing a massive tailwind for the housing market for the last eight years, the tide has turned and rates are starting to nudge higher and that's going to act as a bit of a headwind to the housing market," he said.

Meantime, the market is finding its equilibrium, said Porter, following the "sudden shock" in April of the Ontario government's Fair Housing Plan, which included a foreign buyers tax among a series of market cooling measures.

A 6.7 per cent year-over-year decline in new listings — the lowest level for August since 2010 — could, however, lead to accelerated price growth, said Jason Mercer, TREB director of market analysis.

"As we start to see an uptick in sales, or at least a slower rate of decline, and new listings remain down on a year-over-year basis, we could actually start to see a tightening in the marketplace," he said.

"The dip in demand has kind of masked the fact that we still do have a supply problem in the Greater Toronto Area," said Mercer.

While the price of detached houses in the region remained virtually unchanged this August compared to last, the average condo price increased about 20 per cent.

TREB consumer polling shows a shift in the type of homes people said they're intended to buy, toward denser housing forms such as town homes and condos, and away from pricier detached houses, he said.

John Pasalis, president of Leslieville brokerage Realosophy, who had previously speculated that a surge in new listings in the fall would keep prices low, now doubts that will happen. He also sees a return to balance.

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"I don't think we're in this freefall phase that we were in two, three months ago where everything was just plummeting," he said. "Even our month of inventory improved. We had three months of inventory (in July) and it actually went down to 2.6 (in August), which is the opposite way you would expect in a slowing market."

The real estate market has the benefit of a strong economic foundation with strong GDP growth, low interest rates and unemployment.

But the Toronto region remains a series of smaller markets that are coming back into balance at varying rates, said Cam Forbes of RE/MAX Realtron Realty.

In King, where the average price of a home is about $1.5 million, he said, "it's truly a buyer's market."

"There's one home selling for every eight listings in that area. But in the City of Toronto, you've got a one for two — so every sale there's just two listings on the market. That's a seller's market," he said.

Durham, Peel and Halton regions are still seller's markets, said Forbes.

Seeing prices close to what they were a year ago is restoring buyer confidence. At the same time, he said, "Properties, if they're priced properly are selling in two to three weeks — that 20- to 25-day period."

Meantime, there seems to be a return to a traditional seasonal market, said Shawn Zigelstein, Royal LePage Your Community realtor.

"Traditionally, summer is a slower time and I think we saw that this year. It's very normal to go back to that seasonal market that we haven't seen in a few years because the market has been so hot for so long,” he said. “This just takes you back to an almost normal market condition.”

Home prices declined less than 2 per cent in August from July, said Zigelstein.

"In a summer season where they've raised rates that's a very good number to be at," he said. "It means everything is not dropping as much as everybody thinks it is."

Premier Kathleen Wynne said her Liberal government will continue to monitor the effects of the housing plan.

"We'll be working with the real estate board both in Toronto and beyond to make sure that we’ve got it right. But, you know, there was a real human cry about the over-heated market and we’ve taken, you know, a 16-point plan and we’ll be monitoring the impact," she said.