The average price of a Canadian home sold in May was $509,460, a 13 per cent increase in the past year and the highest figure on record.

The strong gains are largely tied to hot markets in Ontario and British Columbia, according to the numbers released Wednesday by the Canadian Real Estate Association.

Stripping those two markets out of the calculations, the average price of a house sold in May declined 0.7 per cent in the past 12 months, and sold for $310,007 in May.

After rising to a record sales volume the previous month, sales volumes fell sharply.

"Sales activity dropped in May from the previous month in about 70 per cent of all markets, led by those in British Columbia and Ontario where the number of homes listed for sale has fallen to multi-year or all-time lows," CREA said.

"There are housing markets where sales continue to reflect a cautious mood among homebuyers and uncertainty about the local economy," CREA president Cliff Iverson said.

As has been the case for more than a year, the realtor group singled out hot markets in Toronto and Vancouver for skewing the numbers higher.

The drop in sales and new listings in those cities are of grave concern for policymakers, because they could be a sign that high prices are convincing would-be buyers not to bother, and would-be sellers to stay where they are since they can't afford to move up after they sell.

The numbers for Vancouver are eye popping. According to CREA's house price index, housing costs in Greater Vancouver increased 29.7 per cent in the year to May, and in nearby Fraser Valley they were up 31.7 per cent.

Both those figures are more than 17 times Canada's current inflation rate of 1.7 per cent.

The warnings are piling higher on the Canadian housing market. - Bank of Montreal

"The warnings are piling higher on the Canadian housing market," is how Bank of Montreal economists Doug Porter and Robert Kavcic put it in a separate report on Canada's housing market on Wednesday.

"While record low borrowing costs are the most obvious factor behind lofty home prices, the fact that the surge in prices is so heavily concentrated in just two cities (and their environs) means that there are other important factors at play as well," BMO said.

Among the factors the bank cites are foreign buyers, who many watchers claim are driving prices out of reach. While BMO says more hard data is needed on the topic, the bank makes it clear that foreign money is a factor.

"Excess global savings sloshing around have driven many asset prices rocketing higher in recent years, and now that wave has washed upon Canada's biggest cities."

Moreover, recent changes to downpayment rules requiring 10 per cent minimum up front will make it harder for locals to buy, while doing little to curb foreign buyers, the bank warns.

The new rules "will simply crowd out the domestic buyer and leave the field wider open for foreign capital inflows."