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The Globe and Mail

The hot housing market that powered the country's post-recession recovery is slowing to a crawl.

The Canadian Real Estate Association said sales dropped and prices moderated in January, with the weakness spread among more than half of the country's cities. Sales in Vancouver and Toronto slowed to a crawl, with few houses available to would-be buyers.

The low number of listings means there could be a rush of sellers trying to capitalize on the spring market, keeping a lid on the bidding wars that have driven prices sharply higher in some of the country's largest markets.

"There is really a lack of product," said Phil Soper, president of Brookfield Residential Real Estate Services, which operates Royal LePage. "We expect that to pick up considerably, and by the end of March Break you'll really be able to gauge the Canadian market's health. Or lack of health."

Canada's sizzling property market has made headlines around the world, and so far defied some predictions that it's a debt-fuelled bubble bound to pop. Forecasts for home prices for the next several years vary wildly – with economists and analysts predicting everything from a 25 per cent drop to modest gains.

The latest figures suggest a levelling off. Home sales across the country were down 4.5 per cent in January from December, the sharpest monthly decline since July, 2010.

Average prices were 2 per cent higher than a year ago at $348,178, the smallest year-over-year increase in the past year.

It's not the first sign that the much-talked-about slowdown may have arrived.

The Teranet-National Bank index, an alternative measure of price gains that lags CREA by several months, showed prices dipped 0.2 per cent in November, marking the first drop since the fall of 2010.

In Toronto, the bidding wars have largely given way to a market where houses sit longer and sell for closer to their asking price, said Richard Silver, president of the Toronto Real Estate Board. But hot neighbourhoods continue to fetch top dollar, especially considering the lack of listings.

Matthew Slutsky, chief executive officer of real estate site, has been trying to buy a house in one downtown neighbourhood for months. Along with his wife Carlie Brand, he's been popping letters in mailboxes imploring their owners to consider a sale.

"I really hope it's the calm before the storm and more listings pop up," he said. "Right now it feels like we are auditioning for a house, and I don't know if I want to wait and see what happens in the spring."

There's been a sense of unease surrounding Canada's housing market for more than a year. The federal government tightened its mortgage qualification requirements to try to prevent buyers from taking on too much debt in a low-interest-rate environment, and the Bank of Canada has issued a steady stream of warnings about high levels of household debt.

The fear is that rates will rise as the economy improves, and many people who could afford their house when interest rates were low may find those same houses unaffordable as rates rise. Financial turmoil in Europe also has many market watchers concerned, with any default in Greece expected to have ripple effects around the world.

Lenders such as Gerry Soloway, CEO of Home Capital Corp., have cautiously tightened their lending standards in recent months as the economy wobbled. But he doesn't see prices crashing any time soon, even if things slow down considerably.

"I just don't see the catalyst for a big price drop," he said.

It's a theory echoed by Ross McCredie, CEO of Sotheby's International Realty Canada, who recently had 16 buyers check out a $2.5-million home in Toronto.

"We are finding if the home is priced right and a quality home, it is moving fairly quick," he said. "Too many people who are listing are expecting prices well above the market. We are spending a lot of time with our agents to ensure we are only taking on listings at the right price."