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Minister of Finance Jim Flaherty speaks with the media in the foyer of the House of Commons, Friday, Dec. 14, 2012 in Ottawa.Adrian Wyld/The Canadian Press

The way Jim Flaherty sees it, his July changes to Canada's mortgage rules are having the desired effect on the housing market.

"Well, yeah," the finance minister told The Globe and Mail. "I don't mind prices coming down a bit, too."

Mr. Flaherty's comments Tuesday followed new numbers showing Canadian home sales posted their fastest year-over-year decline in December since he tightened mortgage rules in July.

Sales of existing homes over the Multiple Listing Service fell 17.4 per cent in December from a year earlier, and were down 0.5 per cent from November, according to the Canadian Real Estate Association.

The MLS Home Price Index, which seeks to factor out changes in the types of homes being sold to get an indication of underlying prices, rose 3.3 per cent from a year earlier. That's the slowest growth since April of last year.

"Successive rounds of tightening mortgage regulations have kept the housing market in check during what has become an extended low interest rate environment," said CREA chief economist Gregory Klump.

Having said that, the impact of the new rules are probably fully priced into the market now, said Toronto-Dominion Bank senior economist Sonya Gulati.

Economists at TD went through the data last year in an attempt to quantify just how much of an impact Mr. Flaherty's four rounds of rule tightening were having.

In a report in September, they concluded that the changes had a significant permanent drop in housing demand, but "while home prices took an immediate hit following the rule changes, they bounced back within two or three quarters and continued to grow faster than underlying economic fundamentals."

Blame interest rates.

Now, "with the whopping 17.4 per cent year-over-year change in sales seen in December, we suspect that the impacts from the mortgage rule tightening in July are now fully priced in," Ms. Gulati said Tuesday. "We expect the Canadian housing market to stabilize at current levels over the next few months."

Indeed, Royal Bank of Canada economist Robert Hogue pointed out that listings declined by more than sales in December, and that should lend some support to prices now. The number of newly listed homes fell 1.3 per cent from November.

The MLS Home Price Index has been declining for six months on a month-over-month basis, and there have been fears that those declines will accelerate.

"But now if supply is adjusting to the lower demand, this may guard against this acceleration of the decline," Mr. Hogue said in an interview.

He has been of the opinion that the impact of Mr. Flaherty's latest round of rule changes, which included cutting the maximum length of insured mortgages to 25 years from 30, would only be temporary.

"We'll get the answer in the coming months," he said.

And if the sharp declines in year-over-year sales end, and sales flatten out or even pick up a bit, the measures will have run their course, he said.

Ms. Gulati said the sales-to-listings ratio and the number of months of unsold inventory are well within the normal range.

"However, when we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals," she said. "With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013."

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