The association said that tighter regulations on mortgage lending that came into effect in July helped push August homes sales to their largest month-over-month decline since June 2010.
Sales of previously owned Canadian houses and condos have now gone down in five of the past six months.
"While we always caution that housing market trends at the national level can and do run counter to trends in many local markets, the decline in activity in August was definitely the result of much of the country moving in the same direction," CREA president Wayne Moen said in a statement.
Sales in August slipped 5.8 per cent compared with July and were down 8.9 per cent compared with August 2011.
In its outlook for the year, CREA said Monday that home sales are now forecast to rise by 1.9 per cent to 466,900 units in 2012. That compared with a forecast in June that suggested 475,800 homes would be sold in 2012, up 3.8 per cent from 2011. CREA expects volume will slip by 1.9 per cent to 457,800 units in 2013.
CREA also forecast the national average home price would rise by just 0.6 per cent to $365,000 in 2012 and edge lower by one tenth of one per cent to $364,500 in 2013. The outlook was down from a June forecast that prices would rise by 2.2 per cent to $370,700 in 2012.
Economist David Madani of Capital Economics said the recent slump in home sales suggests that a housing correction is underway.
"Assuming that sales continue to trend lower over the remainder of this year, then the typical lag relationship between sales and prices indicates that house prices will eventually follow suit early next year," he wrote in a report.
Madani, one of the more bearish economists, suggested that house prices will decline by 25 per cent over the next year or two.
However, TD Bank senior economist Sonya Gulati suggested that absent a catalyst like an interest rate increase or external economic shock, there is no reason to think the housing market will rapidly unravel from the current levels.
"The weakness in both the price and sales series in August was largely expected and the regulatory-induced slowdown should persist over the next six to eight months," Gulati said.
TD has suggested that the tighter mortgage rules will shave five percentage points off sales activity and cut prices by three per cent on average during the second half of this year and early 2013.
In the next three years, the bank has said it expects the combination of the tighter rules and anticipated modest increases in interest rates will result in a 10 per cent price correction on homes.
CREA said sales were lower in about two-thirds of all local markets across Canada representing 80 per cent of national activity, with lower monthly sales in almost all large urban centres, Toronto, Montreal, Vancouver, the Fraser Valley, Calgary, Edmonton and Ottawa.
The national sales-to-new listings ratio, a measure of market balance, stood at 51 per cent in August, down from 53.1 per cent in July, while the national number of months of inventory, stood at 6.5 months at the end of August, up from 6.1 months at the end of July.
The number of months of inventory represents the number of months it would take to sell current inventories at the current pace of sales.
"The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that amortization periods for high ratio mortgages have been shortened,"said Gregory Klump, CREA's chief economist.
"As the lynchpin of the housing market, lower first-time buying activity will have downstream effects over the rest of the market. While we expect it will likely take more time for move-up buyers to sell their current home, a few more months of data are needed to gauge the broader impact of recent regulatory changes on Canada's housing market."
Ottawa has tightened mortgage rules four times since 2008.
Among the most recent changes, the federal government reduced the maximum amortization terms for government insured mortgages to 25 years from 30.
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