TORONTO, Ontario, Canada - April 10, 2011 - The resilience of the Canadian housing market has confounded experts. While other property markets around the world have plunged, real estate prices in this country continue to reach new heights.

If the Canadian housing market does falter, the impact on the economy will be profound. Consumer spending and housing investment will feel the pain, and the Canadian Mortgage and Housing Corp., which provides mortgage loan insurance, will face substantial losses.

Some believe that low interest rates, solid banks, a growing economy, abundant natural resources and a relatively conservative mortgage market (at least compared to the United States) will all continue to support Canadian housing prices. Optimists argue that the runup in Canadian home prices has been based on strong demand from homeowners, while construction in the U.S. ran well ahead of actual demand and was fueled by speculators.

But there’s another side to this debate. There are those who believe that Canada’s high house prices in relation to incomes, combined with record household debt levels and overinvestment in residential construction, will cause a severe correction in the real estate market.

Such projections are based on the economic reality that home prices are way out of line, especially when viewed in relation to household income. The ratio of house prices to income has historically averaged about 3.5 in Canada. It now stands at about 5.5. It is difficult to see how income growth in the future can bring this ratio close to its historical average within any reasonable period - so it follows that house prices will have to decline.