The Ottawa Citizen reports on the housing bubble in Canada. "We Canadians love our shelter, and like many others around the globe, we're increasingly willing to pay a whole lot of money for it. But in many hotspots, prices have started to slide, as has the number of home sales. Australia is well into a slump. Closer to home, the U.S. Northeast had 4.2 per cent fewer sales so far this year, the Midwest 3.8. In parts of California, home sales are down by more than 20 per cent. In Ottawa, there's a definite cooling under way."

"So even as we shake our heads at the exorbitant price paid for the dump down the street or calculate what our own fixer-upper might fetch, there's a nagging sense that what goes up must come down here, too. The question is when, and how far? The question is when, and how far?"

"A housing market is considered to be in a bubble when prices increase rapidly to an unsustainable level relative to incomes. When do you know that has happened? After the bubble has burst, and people start selling because they can no longer afford their homes. Listings flood the market and prices take a dive."

"Analysts also watch for signs of speculation in the market. 'The minute people start saying 'I'll never get in if I don't go now,' that smacks of a little bit of speculation, a little bit of panic,' says Carl Gomez, an economist who has tracked real estate for the major banks. 'It's like saying 'If I don't buy those tech stocks now,' just before the crash.'"

"So far, little of that seems to happening in Ottawa and most of the rest of the country, with the exception of B.C. and Alberta, the only places where Gomez and others are willing to throw around the B-word."

"'In Vancouver, particularly the condo market, prices are not reflecting economic fundamentals whatsoever,' says Gomez. 'In the case of some condos, it's simply not a rational choice to buy, renting is now cheaper than owning. You also hear anecdotally about the fear factor. Add those parts together and you've got the symptoms of a bubble.'"

"Another sign that the western markets are in dangerous territory is their score on the affordability index. The industry rule of thumb is that most households can handle spending up to 32 per cent of before-tax income on the cost of home ownership. Anything more than that, and decades of data suggest the likelihood of defaulting on the mortgage increases (even so, some lenders will go up to 40 and 50 per cent)."

"Market-watchers look at 'the fundamentals,' general indicators such as unemployment levels, inflation rates and interest rates. If any one of them starts to rise, talk of a bubble rises, too. A weak job market means fewer buyers will be on the hunt, while rising inflation means our money simply doesn't go as far and climbing interest rates make mortgages more expensive; any of which can create an oversupply of houses."

"That's what happened in the last bubble market, in 1989-90. In 1989-90, the affordability index was more than 60 per cent in many parts of Canada, exactly where it is right now in Vancouver."