The Canadian housing boom was declared officially over Thursday.

A slide in existing home sales that started in the West late last year spread to Toronto in the first quarter of 2008, taking the heat out of prices nationwide and driving the ratio of new listings to sales to a nine-year high, figures released Thursday showed.

"Canada's six-year housing market boom is officially over," said Douglas Porter, deputy chief economist at BMO Capital Markets. "There's no question the numbers were probably distorted by a few feet of snow in the first quarter of the year, but I think there's some very real underlying cooling underway here."

The Canadian Real Estate Association reported 75,476 homes changed hands in the first quarter of 2008, down 13% from the first quarter of 2007. In March, sales dropped 18.7% from the same month the year before, including a 39.7% slide in Calgary, a 34% drop in Edmonton and a 22.2% drop in Toronto.

Average prices rose just 5.5% to $327,620 in the first quarter over the first quarter of 2007, the smallest price increase since the fourth quarter of 2001. Prices rose 11% last year and 10% on average in each of the prior five years.

New listings surged 29.8% in Calgary and 52% in Edmonton in the first quarter as the market has run into a brick wall of affordability, slowing growth and immigration after years of spectacular price gains.

"Double-digit declines in resale activity at the same time as sizable listing increases don't bode well for the controlled housing cool-down [that was expected]," said Derek Holt, vice-president of economics at Scotia Capital. "The fact that it showed up very strongly in the Toronto numbers as well suggests it's not just a Western Canadian story."

Still, most economists do not think Canada is heading for the kind of housing meltdown the United States is going through.

Employment, the key driver of housing sales, is still strong and Canada did not indulge in nearly the same amount of high-risk sub-prime mortgage lending as the United States.

Canadians have been taking out longer amortizations -- as much as 40 years in some cases -- to afford the price increases of recent years, but there has been little of the no-documentation, low-documentation or interest-only mortgage origination that fuelled so much of the U.S. housing boom.

"The forms of mortgage innovation that occurred in Canada in the last couple of years were much more cautious and ... they arrived much later in the cycle than elsewhere in world," Mr. Holt said.

Ted Carmichael, chief economist at JPMorgan, notes U.S. housing starts crested at more than two million at the peak of the U.S. boom at the turn of 2007, well above the 1.5 million that demographic trends should have allowed.

Canadian housing starts peaked at 277,300 in September, 2007, and have definitely been running hot in the 225,000 range, but the demand has been there; a lot has come from Canadians migrating to Western Canada in search of work as well as new international immigration to Canada's big cities.

Much of the building has been catch-up from the long housing slump Canada went through from December, 1989, to September, 1998. According to a report from Goldman Sachs this week, that was the fourth-longest of 24 housing busts in developed economies since the 1970s.

"I would say Canada's situation right now is somewhat better than it was when we were going into the 1990 to '91 recession," Mr. Carmichael said. "Since 1990, home builders have learned to sell their homes largely before they build them."

Mr. Carmichael thinks starts will drop back below 200,000 and it would not be surprising to see outright price declines in the next 12 to 18 months. He added the Bank of Canada will have to cut interest rates even more significantly to make home buying more affordable again.

Ongoing turmoil in the international credit markets have not left Canadian banks unscathed. Even though the central bank has slashed its key interest rate to 3.50% from 4.50% since December, mortgage rates have come down only about half as much. Banks are facing higher funding rates themselves and have been reluctant to pass on the savings fully.

Many economists expect the Bank of Canada to cut rates another half a percentage point on Tuesday, perhaps invigorating the spring selling season, which could prove to be the key test for the Canadian housing market going forward.

National Post