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Sales in the Greater Toronto Area fell 21 per cent from a year ago, according to that region’s real estate board. But prices are higher than they were last September.Fred Lum/The Globe and Mail

Housing markets across Canada – with the exception of Calgary – are continuing to soften, even as the fall sales season kicks off.

Figures to be released Monday by the Canadian Real Estate Association are expected to show falling sales in most major cities in September, with Vancouver leading the decline. September's decrease in sales comes on the heels of a 5.8-per-cent monthly drop from July to August.

The data are being monitored closely by policy makers in Ottawa, who are attempting to steer the market toward a soft landing. To that end, Finance Minister Jim Flaherty tightened mortgage insurance rules in July to slow demand for homes. But it's a tricky balancing act, and some real estate players fear Vancouver's market, in particular, might now be cooling too quickly.

So far, the sharp decrease in sales has not had a major impact on national home prices. Most economists expect prices will fall over the next year, but many say a correction in the neighbourhood of 10 to 15 per cent would be a healthy development for the market.

"While prices may be holding up, there is now widespread evidence that home sales tumbled in almost every major city last month (save Calgary)," Bank of Montreal economist Douglas Porter wrote in a recent note. "Our monitoring points to a national decline in sales of 15 per cent year-over-year, with average prices at best holding flat."

A rise in activity in Calgary might help to offset some of the declines at a national level, Royal Bank of Canada economist Robert Hogue said.

But a number of cities whose housing markets have been solid in recent years, such as Ottawa, Montreal and Winnipeg, saw sales decline between 14 and 17 per cent last month from the previous September, Mr. Porter noted. Sales in Kelowna, B.C., dived 25 per cent, mimicking activity in Vancouver and the Fraser Valley, he added.

Sales in the Greater Vancouver area fell 32.5 per cent from a year ago, and 8.1 per cent from August, according to the region's real estate board. But the average price of a home still stood at $606,100, down 0.8 per cent from a year ago.

"It's just a matter of time" before falling sales lead to lower prices, CIBC economist Benjamin Tal said. "I think that in the next six months. we'll see a very clear trend of softening prices."

He's among those who believe that a price correction now would be positive, because it would be worse if the market held strong until interest rates rise.

"It's actually a healthy softening in a reasonably healthy environment," he said. "You don't want to start seeing a rapid softening due to the impact of higher interest rates. Right now, we're basically choosing to slow. Banks are being more conservative, the government is slowing things, and consumers and home buyers are more selective and more aware of where we are in the cycle. To me this is the healthiest combination for a slowdown; you don't want to slow down in panic."

"I think in the case of Vancouver, in particular, the cooling is welcome," said Mr. Hogue, adding that that city's market is the most overheated in the wake of a prolonged boom.

Sales in the Greater Toronto Area fell 21 per cent from a year ago, according to that region's real estate board. But prices are higher than they were last September.

Shareholders of the large banks are also keeping a close eye on this data. To date, mortgage debt is still growing by roughly 7 per cent a year.

"If the recent sales declines persist (a big if), this growth in mortgage debt outstanding will cool rapidly," Mr. Porter wrote. "The slowest rate of mortgage growth in the past 40 years was 1 per cent in 1982, during a devastating recession and double-digit long-term mortgage rates."