Canadian sales of existing homes rose for a fifth month in June, according to the Canadian Real Estate Association, adding to evidence that record low borrowing costs are fuelling housing demand.

Sales rose 8.7% to 41,304 homes from the previous month on a seasonally adjusted basis. Average home prices rose +3.6% from a year earlier and the inventory of unsold homes fell to its lowest since August 2007.

Recent data on Canada’s housing market suggest the Bank of Canada’s efforts to stimulate spending with interest rate cuts are helping fuel demand for homes and may be reversing a slump in home construction. The Bank of Canada, which forecast that housing will shed -1.1% from growth in 2009, has cut its benchmark lending rate to a record 0.25%.

New home sales jumped by 32% during the second quarter to 114,173 units, according to the Canadian Real Estate Association. In addition, the number of months needed to sell current inventories fell to 4.2 in June, the lowest level in more than two years.