The slowdown in Canada's largest housing market intensified last month amid ongoing fallout from Ontario’s plan to cool home prices.

Sales across the Greater Toronto Area plunged 40.4 per cent year-over-year in July as 5,921 properties traded hands. The sharp decline in activity was even more severe for the most coveted homes, as detached property sales sank 47.4 per cent.

"Clearly, the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve," said Toronto Real Estate Board President Tim Syrianos in a statement Thursday.

Home sales have been falling at an accelerating rate ever since Kathleen Wynne's government revealed its so-called Fair Housing Plan on April 20, which was intended to improve affordability amid mounting fears that Toronto's housing market was in a full-blown bubble. The plan includes 16 measures; most notably, a 15-per-cent levy on foreign speculators.

“We’re here because nothing was done a year ago,” said Realosophy Realty President John Pasalis in an interview with BNN Thursday.

“Had the government stepped in to try to cool the market in 2016 rather than 2017 maybe we would have avoided this slowdown. But this is just the market correcting itself.”

Uncertainty about the long-term impact of the government’s intervention has contributed to an increase in the number of properties available for sale; indeed, active listings surged 65.3 per cent in July.

The combination of slumping sales and rising inventory has weighed on prices, which soared at double-digit rates up until the provincial government stepped in.

In July, the average selling price across the GTA was $746,218 – almost 19 per cent below the April peak of $920,791. While the average price last month was still five per cent above year-ago levels, Realosophy’s Pasalis isn’t ruling out annualized price drops across the GTA in the months ahead.

“September is going to be the big month because September usually is when a lot of buyers jump back into the market, but we’re also expecting a lot of new listings,” he said.

“If more buyers jump in than sellers, then the market is going to improve a little bit. But if more listings pop up into the market, we’re going to see a really soft fall.”