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This is what is happening. For example, a modest bungalow in Toronto sold last month for $1,180,800, $400,000 more than the asking price of $759,000. Canadian bidders were furious and deserved to be. The winning bid was made by a university student whose parents have a business in the United States but who live in China.

our housing market is afflicted by “overvaluation, speculation and over supply.

2012 is going to be the year when housing prices start heading south

subprime mortgages are virtually non-existent in Canada, and government guarantees on mortgage insurance act as a buffer protecting the banking sector from housing market downturns. A whopping 75 per cent of mortgages in Canada are fully insured by Ottawa

prices nationwide will slip by five per cent this year in the best-case scenario. A spike in unemployment could trigger a 10 per cent price drop

Secondly, even in areas where there is a bubble, not all sectors of the market are equally inflated

condo prices have already declined 15 per cent

Canada’s pop won’t bring down the entire financial system

“We watch the housing market carefully and we are prepared to intervene if necessary,” he said.

Last week Finance Minister Jim Flaherty hinted he is also worried about housing:

hough job creation is softening in Canada, there’s little reason to believe joblessness will rise to America’s level.

Even economist Nouriel Roubini–famously dubbed Dr. Doom for accurately predicting the great recession–doesn’t think Canada is headed for disaster. He predicts a 10-per cent correction, but not a U.S. style meltdown.

The government already cut the maximum length on federally insured mortgages from 35 to 30 years in early 2011,

The average home price in Vancouver finally saw a decline in March at $730,998 from $823,749

average home price in Toronto rose again in March at $503,998 from $499,354

t's the decisions of the individuals who take out the loans, and Canadians are a smart and prudent people

onus isn't just on individual Canadians, but also on the banks and institutions that must make some wise decisions and not lend to people who clearly can't pay the money back

as well as the federal government for tightening mortgage lending rules.

Carney repeated warnings against Canadians taking on too much household debt,

Carney said interest rates "are going to go higher,"

Canadians should make sure they can carry that debt when interest rates "are at a more normal level."

And that is why I want to spread fear. Because though we may not be in a bubble now, if we keep this up, we are going to be. And if a bubble pops, that is something really worth being frightened of.

When a housing bubble pops, first-time buyers with large mortgages are really screwed. Leverage is great when assets are rising, but a decline of even five percent can quickly wipe out a young family's nest egg. A drop of 10 or 20 per cent leaves many homeowners tens of thousands in the hole. Even homeowners without mortgages feel poorer – the so-called inverse wealth effect.

According to the IMF, when that happens, spending dries up for five years, and stays flat for years after.

Despite deep fears of their own, banks are still crazy to lend. Just as Hertz makes its money by renting cars, banks make money by renting money. They just can't help themselves.

Low interest rates held down artificially by central banks in an attempt to jump-start the economy make the math for borrowing to buy look good, for now at least.