A major index tracking GTA home prices dropped in January, and according to one economist, new mortgage rules are to blame.

The Teranet-National Bank Composite National Home Price Index fell 1.9 per cent in February, following two consecutive increases in December and January.

“The Composite Index relapsed in February…over [the last six months] indexes declined in seven metropolitan regions out of 11,” writes National Bank economist Marc Pinsonneault.

The index tracks prices for homes that have been sold at least twice in 11 Canadian cities, and smooths the data between markets.

Pinsonneault writes that in the GTA, February home sales were at their lowest seasonally adjusted level since July 2010, likely due to the effects of a new mortgage stress test for uninsured buyers.

“It…seems that the new stricter bylaws on qualification for uninsured mortgages together with increased interest rate hikes are taking a bit at least in [one of the] most unaffordable large markets in Canada,” he writes.

But, he also notes that Toronto’s tight market, with limited supply and high demand, is unlikely to see lower prices for long.

It’s a sentiment echoed by RBC senior economist Robert Hogue, who wrote this week that the GTA market should begin to recover in the coming months.

“It’s worth noting that sellers warmed up to the market [in February],” he writes. “New listings rose in February in Toronto after declining markedly in January. This could be an early sign of a pick-up in buyer activity in the coming months.”

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