Canada tightened the country's mortgage-financing rules for the fourth time in as many years, as officials here struggle with what they are increasingly worried is an overheating housing market.

Canada's red-hot property market has been a stark foil to the lingering downturn south of the border. While housing prices have languished in places like Detroit, a condominium-building boom—reminiscent of prebust Miami and Dubai— is in full swing just a few hours drive away in Toronto.

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Associated Press

Canadian Minister of Finance Jim Flaherty is tightening mortgage rules to make it harder for people to buy or borrow on their homes.

Canada and its relatively conservative banking sector survived the global economic and financial crisis relatively unscathed. But the country lowered interest rates in line with most of the rest of the developed world. That has triggered a credit binge, with Canadians rushing to take out low-interest mortgages, in particular.

Household debt in Canada hit a record in the first quarter of this year, at 152% of disposable income, according to Canadian government statistics. Meanwhile, housing prices—particularly in big cities like Toronto and Vancouver— have soared.

That has government officials and the country's central bank warning about possible overheating. They have taken particular aim at Toronto's condominium market. Finance Minister Jim Flaherty said Thursday that the new measures are aimed at taking some of the froth out of those markets, by limiting access to credit.

But the move also risks triggering a sharper market pullback at a time when some indicators show some markets are already cooling. Canadian home sales fell 3.1% in May from April, the first monthly decline since January, according to the Canadian Real Estate Association.

Nomura economists said the moves—which include shortening amortization periods— come too late and increase the risk of a hard landing. Shortening the time a home buyer has to pay back a mortgage could provide "a very powerful negative dynamic in a housing market that is already showing signs of slowing," they wrote in a report Thursday.