Canadian home prices fell six per cent to $746,000 in April, as higher interest rates poured cold water on a red-hot real estate market.

Home sales fell 12 per cent nationally in April, with the biggest drops seen in big cities like Toronto, the Canadian Real Estate Association said Monday.

Prices peaked at a record high of more than $816,000 in February this year and average home prices have now declined for two months in a row. In March, the average price stood at $796,000, before falling another six per cent in April, which is typically a strong month for the housing market.

"Following a record-breaking couple of years, housing markets in many parts of Canada have cooled off pretty sharply over the last two months, in line with a jump in interest rates and buyer fatigue," CREA chair Jill Oudil said in a statement.

CREA says the average selling price can be misleading because it is easily skewed by expensive and numerous sales in big cities like Toronto and Vancouver. It highlights a different number called the House Price Index (HPI) as a better gauge of the market because it adjusts for the volume and type of homes sold.

The HPI shrank by 0.6 per cent in April, the first monthly decline in two years.

While prices are down from their recent peak, they remain up by about seven per cent from where they were a year ago.

Still, the numbers paint a picture of a housing market cooling from its feverish activity just a few months ago. While the numbers revealed Monday are national in scope, the national average is being dragged down by Toronto, where average selling prices are down by about $80,000 since March.

Realtor Daniel Foch says it's not yet a buyer's market, but things are showing signs of heading that way. For now, it's what he calls a "beauty pageant market."

"If a product really stands out and it's underpriced, it will attract a lot of the buyers from that price range. But you're not seeing it across every single [property]," he said in an interview.

While he doesn't expect a major correction because there are still many well-financed buyers eager to get in, he has heard of cases of buyers trying to back out of expensive deals they committed to earlier this year.

"The challenge is if you default on the transaction and the seller wants that money, you're still going to be held liable for that difference anyway. So in most cases, unfortunately, you're best off to honour the contract because at least you end up with the house," he said.

Lower prices may be welcome news for buyers trying to get into the market, but they're anxiety-inducing for those trying to sell — especially if they've already bought somewhere else.

Some who bought at the highs assuming their lenders would loan them a certain amount are discovering in the appraisals process that the bank is valuing that property by less than anticipated, which forces the buyers to have to come up with more than they were expecting up front.

Leah Zlatkin, a mortgage broker with Lowestrates.ca, gives the example of a buyer who makes an offer assuming their lender will finance 80 per cent of the cost. But when the property gets appraised, it is valued at a number much lower than the offer price, which forces the buyer to scramble to come up with a much larger down payment than they anticipated.

"When home purchasers have really stretched their budget and bid over asking price, we are starting to see those appraisals come in a little bit lower in some cases," Zlatkin told CBC News.

Keith Lancastle, CEO of the Appraisal Institute of Canada, says it's not uncommon in frothy markets for buyers to get carried away and offer far more than an appraiser values the property at — and the same is true of down markets.

"The selling price doesn't drive the mortgage, the appraised value drives the mortgage, and that's the value that the lenders base their decision on," he said.

A slowing market is also anxiety-inducing for those who jumped in at the peak and have buyer's remorse now. That's something recent buyers Joshua Keyes and Yuri Nakashima are sadly familiar with, after buying their first home in Sudbury, Ont., earlier this year.

Since they were living in Vancouver, they worked with a Sudbury-based realtor who the couple says didn't encourage enough due diligence, causing them to offer far over asking price for a property that has since proven to have numerous problems with water and other damages, a cockroach infestation and other structural issues.

They say they didn't view the home virtually or in person before submitting their unconditional offer, with no home inspection. They say they now face a six-figure bill to repair their currently uninhabitable dream home.

"We're hoping that our story serves as a cautionary tale for other first-time home buyers," Keyes told CBC in an interview. "Make sure you do your due diligence or else people will take advantage of your ignorance."

"We want to make sure that this doesn't happen to other people."