The number of home sales declined 2.8 per cent in January compared with the near record level in December, the Canadian Real Estate Association said Wednesday.

Ontario accounted for about half the national decline, but activity was also down in British Columbia, Alberta, and Manitoba. Conversely, home sales reached new heights in Quebec, the association said.

People walk past new homes for sale in Oakville, Ont., last April. Nationally, home prices were up more than 19 per cent in January. (Nathan Dennette/Canadian Press)

Year over year, home sales were 58 per cent higher in January 2010 than they were in the same month last year, when housing activity reached the lowest level in a decade during the depths of the recession.

"Because activity began recovering in February last year, large year-over-year gains are expected to shrink over upcoming months," the real estate group said in a release.

The average price of all homes sold through the body's online Multiple Listings Service in January 2010 was $328,537, up 19.6 per cent from one year ago. In January 2009, the average Canadian home price hit its lowest level in three years.

Inventory levels continue to be depressed, which is contributing to the price gains. Strong demand for resale homes continues to draw down supply. There were 170,199 homes listed for sale on MLS in Canada at the end of January 2010, a decline of 18 per cent from levels reported for the same month in 2009.

That put the inventory level at 6.6 months, well below the 12.8-month level it was at in January 2009.

Market cooling?

“January results suggest that the national resale housing market may be past the recent peak," said Gregory Klump, chief economist of the Canadian Real Estate Association.

Market watchers at the big banks echoed that sentiment on Wednesday. "Despite the gaudy headlines, the housing market is getting a firmer grip on reality," BMO economist Doug Porter said.

"Supply is starting to slowly build from ultra-low levels, helping bring the market into something closer to balance," he said.

"[Inventory levels] are still planted firmly in sellers’ territory, but moving in the right direction for buyers," he said.

The advent of the HST in Ontario and B.C., coupled with widely expected interest rate hikes and new mortgage insurance rules outlined by Finance Minister Jim Flaherty on Tuesday will all combine to cool off the housing market later in 2010, he predicted.