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For sale signs are seen outside homes for sale in the Kitsilano neighborhood in Vancouver, B.C., on Tuesday September 18, 2012.DARRYL DYCK/The Globe and Mail

Canadian home sales in January were 5.2 per cent lower than the same month last year, but edged up 1.3 per cent from December, the Canadian Real Estate Association said Friday.

House prices, meanwhile, continue to grow but at a slower pace, with the MLS Home Price Index rising 3.1 per cent during the month, the smallest increase since April 2011.

Sales in the second half of 2012 fell sharply in comparison to the second half of 2011, a phenomenon that the Canadian Real Estate Association (CREA), which represents the nation's realtors, attributed to tighter mortgage rules that the federal government imposed last summer. Among other things those rules cut the maximum length of an insured mortgage from 30 years to 25, a move that Finance Minister Jim Flaherty made in July because he was worried that mortgage debt and house prices were rising too fast.

While sales continue to be significantly lower than a year earlier, CREA noted that they have not changed much from month to month since September. The association adjusts the month to month comparisons for typical seasonal sales trends.

"Although the air continues to seep out of Canada's formerly red-hot housing market, today's data provided some hints that the sharp decline in activity over the second half of 2012 may be beginning to stabilize just in time for the all-important spring market," Toronto-Dominion Bank deputy chief economist Derek Burleton wrote in a research note.

He noted that TD's research shows that the negative impact on sales that occurs after the government tightens the mortgage rules usually lasts about two to three quarters, following which the market begins to bounce back. Low mortgage rates and unemployment should also support the market.

But Mr. Burleton still believes that Canada's housing market will see a moderate downturn in the next few years. "This is especially the case for prices, which have recorded a hefty run-up since 2006 and where a correction thus far has been elusive," he wrote.

CREA said the number of new listings nationally rose 1.6 per cent in January from December, the first increase since September. Greater Toronto led the way in new listings, having seen a similar size drop in listings during December.