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Signs for open houses are seen in Toronto's Annex neighbourhood on Oct. 14, 2012.Jennifer Roberts/The Globe and Mail

The market for home sales is chilling further after months of decline – and it's putting Finance Minister Jim Flaherty on the hot seat.

New data show sales deteriorating in November, and the association that represents Canadian realtors says sales will fall, not rise, this year and next.

Mr. Flaherty, who sought to cool the market this summer by tightening mortgage insurance rules, says his actions are only one part of the story and that Canadians are voluntarily curbing their appetites for mortgage debt.

The stricter rules that took effect in July included cutting the maximum length of an insured mortgage to 25 years from 30, a move that industry players say knocked a number of potential first-time buyers out of the market or pushed them into lower-priced homes. In addition to the rule changes, Mr. Flaherty and Bank of Canada Governor Mark Carney have been trying to talk down the market by warning Canadians about the perils of taking out large loans while interest rates are low. Their fear has been that too many borrowers were taking on excessive mortgage debt that would be unaffordable if rates were to rise. Parts of the market were getting frothy so, to mitigate the risks of a housing downturn they've sought to slowly take some steam out of the market and steer it toward a soft landing.

While economists say that so far it appears to be working, a number of real estate professionals and organizations argue that the changes went too far and pose a threat to the economy.

On Monday the Canadian Real Estate Association reported that sales over the Multiple Listing Service fell 1.7 per cent from October to November, with activity coming in 11.9 per cent lower than last November.

As a result it has cut its forecasts for this year and next, which it had just revised downward in September, saying "lower than projected third-quarter sales have downgraded the prospects for activity this year in almost every province." And the association made it clear that, as far as it can see, there is only one reason for the cooling.

"Interest rates have remained low and the economic backdrop has remained supportive for housing activity, so that should leave little doubt that recent changes to mortgage regulations are responsible for having cooled activity," CREA chief economist Gregory Klump stated in a press release.

But Mr. Flaherty, when asked about that assertion during a press conference in Meech Lake, Que., where he was meeting with provincial finance ministers, said "the cause and effect is not that simple."

"I certainly believe that the steps we took to tighten the mortgage insurance rules had some effect," he said. "The Office of the Superintendent of Financial Institutions tightened guidelines as well. And I think there's an increasing awareness among the Canadian public that excessive debt is unwise in a time of historically low interest rates."

OSFI, the nation's banking regulator, released mortgage guidelines this summer that push lenders to be more cautious in areas such as credit checks and appraisals. It also capped the amount that an individual can borrow on a home equity line of credit at 65 per cent of the home's value. The big banks were required to follow those guidelines as of the start of November.

CREA now expects resales of existing homes to come in at 456,300 units this year, down 0.5 per cent from last year and nearly 1 per cent below the 10-year average. In September, it said it expected resales to rise by 1.9 per cent this year to 466,900 units, a figure that it had already revised down.

There are regional variations to the trend. Alberta is expected to see a 13.1-per-cent rise in sales this year, while British Columbia will see a 10.7-per-cent decline.

CREA now expects 447,400 sales next year, down 2 per cent from this year. In September it had estimated 457,800 units – again, a figure that it had already cut.

"The continuation of moderate economic, job, and income growth will temper the impact of recent mortgage rule changes, which are not expected to dampen activity much more than has already been felt until interest rates are expected to begin rising in late 2013," the association stated in its new forecast.

The slowdown is beginning to show up in prices, which have lost their momentum. The national average price of houses that sold in November was 0.8 per cent lower than a year ago. The MLS Home Price Index, which seeks to account for changes in the type of houses sold, rose by 3.5 per cent, its smallest increase since May, 2011.

Sales have contracted in eight of the past 11 months, Toronto-Dominion Bank senior economist Sonya Gulati said in a note.

The slowdown is most noticeable in Toronto, Montreal and Vancouver, she added, saying those cities "are more vulnerable to experience a greater-than-average housing adjustment."

Nationwide, TD expects market conditions to stabilize early next year "as tighter mortgage rules loosen their grip on market trends and low interest rates lure homeowners back into the market."

With a report from Bill Curry.