* Sales down 0.5 month/month, 17.4 pct lower than year-earlier
* Prices edge higher, but gains continue to slow
* Impact of tighter mortgage rules will lesson, economist says
By Andrea Hopkins
TORONTO, Jan 15 (Reuters) - Sales of existing homes in Canada fell in December from November and year-over year sales tumbled, the Canadian Real Estate Association said on Tuesday, further evidence Canada's once-hot housing market has slumped.
CREA, the industry group for Canadian real estate agents, said in a report that sales activity was down 0.5 percent in December from November, the third consecutive monthly decline.
Actual sales for December, not seasonally adjusted, were off 17.4 percent from a year earlier, the largest drop since tighter mortgage lending rules went into effect last July.
The federal government tightened the rules after roaring sales since 2009 and historic levels of household debt sparked fears of a bubble. Sales have since slumped and economists are divided over whether there will be a U.S.-style housing crash or a soft landing of slower sales and gradually declining prices.
"With the whopping 17.4 percent 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," Sonya Gulati, senior economist at TD Economics, wrote in a research note.
"We expect the Canadian housing market to stabilize at current levels over the next few months. When looking at previous mortgage rule tightening episodes, the housing market impacts have been temporary in nature. There is no reason to think that this time will be any different."
CREA's Home Price Index rose 3.3 percent in December from a year earlier, the smallest gain since April 2011. This marks the eighth time in as many months that the year-over-year gain shrank.
CREA said sales were handicapped by December's five full weekends, since far fewer deals happen on Saturday and Sunday.
The group said new listings have fallen as sellers with no pressure to sell take homes off the market if they cannot get the asking price.
"In the absence of economic stresses like a spike in interest rates or a sharp drop in employment, this dynamic can be expected to keep the housing market in balance," CREA Chief Economist Gregory Klump said in the report.
The number of newly listed homes fell 1.3 percent month over month in December. Combined with monthly declines of 1.1 percent in November and 4.1 percent in October, new supply reached its lowest level since March 2011, CREA said.