Just a three months after Edward Jones released a report about the precarious state of the Canadian housing market, housing sales fell in Toronto and Vancouver. Citing prices higher than historical averages, easy credit, and lax government policy that allows people to get in over their heads as the three conditions that create a housing bubble, Edward Jones seemed to be right on the money. Is Canada’s housing bubble finally about to burst?

In Toronto, new home sales in June 2010 were 43% lower than they were twelve months earlier, and July was the third consecutive month of decreasing sales. Housing starts in June were 15% lower than they were in May. But not much hand-wringing is going along with these trends: many experts, like Toronto Real Estate Board president Bill Johnson, say the market “has become more balanced.” After all, average prices are still 6% higher than they were last year, and most of the decline seems to be in first-time buyers. Higher-than-average buying in the first quarter of 2010 means that total sales this year are still up by 11%.

Vancouver has also seen record drops from last year, a 45% decline from last July and the third-lowest July in a decade. But again, this had little effect on prices: the average house price in Vancouver fell by just 0.2% to $793,193. Real estate agents estimate that about a third of the buyers are first-time buyers.

Outside of the major centers, where listings were lower and the market appears to be cooling, there are plenty of houses for sale in small- to mid-sized cities. Nevertheless, both economists and the general public are becoming concerned about the state of the housing market and economic instability, as well they should be. I’ve written before on the instability of housing as an investment and the major government supports that encourage the vast majority of people to believe homeownership is the only option. Is this really the only way to house our population? More specifically, should it be the only housing alternative to receive such funding and policy support? Although there has been some tightening of lending policy and mortgage availability, there are still a lot of policies and incentives supporting homeownership. What about using some of this leverage to support rental, co-op and other types of housing?

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