OTTAWA (Reuters) – Canadian home sales fell sharply in September from a year earlier while households pile on debt and business sentiment slumps, in step with downbeat data on Monday that suggested a struggle for growth in coming months.

Two reports on what policymakers say are the 2 biggest dangers to the Canadian economy – the new housing market and high household debt – indicate a reasonably sharp decline in house sales at a time when consumers are increasingly susceptible to a sudden downturn within the value in their homes or an increase in borrowing costs.

House prices continued rising in September, but at a slower pace than earlier.

Separately, the Bank of Canada‘s third-quarter survey of companies showed sentiment weakened on issues including hiring, investment intentions and sales.

The knowledge feeds into the market view that the central bank needs to be in no hurry to elevate interest rates despite the hawkish language it has used since April.

“Today’s numbers are in keeping with our expectation that growth in coming quarters will average 2 percent or less, giving the bank little reason to give thought acting anytime soon on its tightening bias,” said Peter Buchanan, economist at CIBC World Markets.

Canada’s export-reliant economy has recovered from the 2008-09 recession and still looks set to grow moderately this year and next.

However the European debt crisis and the spotty U.S. recovery have ended in worries that the Canadian recovery may also be thrown off course.

The newest figures show that government efforts to bypass a U.S.-style crash in a housing market that has heated up at an alarming pace because the recession have had some effect.

Most analysts predict a soft landing for real estate, although some still fear a coarse ride.

Sales of existing homes rose 2.5 percent in September from August, the primary monthly gain since March, the Canadian Real Estate Association said. But year-over-year sales dropped by a pointy 15.1 percent.

CREA’s Home Price Index rose 3.9 percent in September, its smallest gain since May 2011.

The Canadian government introduced tighter rules on mortgage lending in July on the way to cool the market, and CREA said the brand new rules have kept a lid on sales.

“While some first-time home buyers may not qualify for mortgage financing under the hot rules, it’s likely that many others are stepping back and reassessing how much house they are able to realistically afford, that is one of the most things new mortgage rules were designed to do,” Gregory Klump, CREA’s chief economist, said in an announcement.

Francis Fong, economist at TD Economics, said he didn’t expect any “precipitous decline” in housing activity, because rates of interest were set to stay low.

“Rather, we predict a gentle unwinding of the imbalance in both sales and costs over the following few years,” he said.

NEW MORTGAGE RULES

Finance Minister Jim Flaherty has said he hopes the tighter mortgage rules may also throttle growth in debt, which has surpassed U.S. levels as home buyers make the most of ultra-low rates.

However the household debt-to-income ratio rose within the second quarter – before the hot rules came in – climbing to 163.4 percent from 161.8 percent within the first quarter, Statistics Canada said.

Historical revisions to the info to fulfill new international standards ended in much higher ratios than previously reported.

The Bank of Canada survey showed senior managers were more cautious within the third quarter about making investments in machinery and kit even if policymakers has been prodding them to position their cash to productive use.

Only 37 percent said they expected to take a position more on machinery and gear within the next year while 29 percent expected to take a position less. The variation between the 2 – the so-called balance of opinion – remained positive at eight but was sharply below the second one-quarter balance of 24.

Bank of Canada Governor Mark Carney has chided corporate Canada for being overly cautious and sitting on piles of money as opposed to spending it on equipment or technology to enhance productivity.

(Reporting by Louise Egan, Andrea Hopkins and Randall Palmer; Editing by Janet Guttsman; and Peter Galloway)