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A for sale sign sits in front of a Mississauga residential home, April 16, 2012.J.P. MOCZULSKI/The Globe and Mail

Policy makers are getting their wish as caution creeps into the Canadian real estate market.

Not only did flat sales activity in July indicate a sense of calm among buyers, but fewer new listings compared with a month earlier showed sellers are also being more cautious.

"A lot of people are just really uncertain about the housing market and they may not want to list their house if they think there aren't going to be any buyers or they aren't going to be able to get the price that they list at," said Francis Fong, an economist at Toronto-Dominion Bank.

New listings dropped 3.3 per cent in July compared with June, according to a report from the Canadian Real Estate Association released Wednesday. There were fewer listings in more than half of all Canadian markets, including major cities such as Toronto, Vancouver, Montreal, Calgary, and Edmonton.

The overall number of new listings is still above year-ago levels, but the decline in the most recent month could be an indirect effect of the federal government's new rules to cool housing markets by tightening mortgage lending.

In some markets, prices are less enticing to sellers who could have received outsized gains for their home had they listed when the market was at its peak frenzy.

"We've had all kinds of headlines about a potential weakening in the market and the new tighter mortgage rules, and it's possible that some potential sellers were influenced by all the chatter," said Doug Porter, deputy chief economist at BMO Nesbitt Burns Inc.

Sellers might be taking a "wait and see posture," he said, adding that it will be almost a year before the effects of the new mortgage rules can be properly assessed.

In the meantime, there are early indications of a slowly cooling market.

Steady sales activity in July followed a 1.3 per cent decline in June. In the overheated Vancouver market, there was an 18.6 per cent decline in the number of sales compared with last year. Toronto showed a 4.4 per cent annual decline.

Average prices in both those major real estate markets have also come off recent peaks, falling half a per cent in each city between June and July.

The national average home price fell 2 per cent in July from last year to hit $353,147, but this was largely due to a steep 12.4 per cent drop in Vancouver. In 73 per cent of Canadian markets, prices were actually up.

"While sales activity and prices are no doubt simmering down, they are neither too hot nor too cold – perhaps just right," Mr. Porter said.

But at the same time, some important elements of the broader economy are not going right.

Job growth in Canada slowed to a crawl, with the latest employment report from Statistics Canada showing the unemployment rate bumped up a tenth of a percentage point to 7.3 per cent in July.

"People are just really uncertain about what the future looks like," Mr. Fong said. "[They're thinking] maybe they'll just stay put for the next little while until the correction in the housing market is over."

July's report is a sign the correction is at least beginning, but economists at TD Bank are predicting that a full correction will entail a reduction in sales activity by between 10 and 15 per cent. So far, overall sales activity is still growing and is up 3.3 per cent from last July.

The drawn-out and still-uncertain resolution to economic problems in Europe, economic slowdown in the United States, and now even faltering growth in emerging markets such as China all have Canadians on edge too.

"You might have some potential sellers that are uncertain about the global economic environment and think they'd rather hold off a bit until things have calmed a bit before they try to sell," Mr. Porter said.