Deirdre McMurdy

There are several consistently compelling reasons to be worried about the residential real estate market in Canada — especially when it comes to condominiums.

For some time now, economists, bankers, bureaucrats and other experts have expressed their concern about the impact of record household debt levels (debt-to-income ratios are on track to hit 150 per cent by the end of this year and 151 per cent by the end of 2013), a fragile low-growth economy and uncertain employment forecasts.

Even the Big Banks are feeling edgy: they have recently announced that they're reviewing costs and anticipating significant layoffs over the course of 2012.

By some estimates, Canada's housing market is currently at least 10 per cent over-valued. Some believe that number could be closer to 20 per cent.

And while there might not be consensus on that point, there is complete agreement on the fact that any uptick in interest rates — or even a suggestion that interest rates could start to climb — would cause a serious problem for millions of over-leveraged homeowners.

Average house prices, after all, have grown more than twice as fast as family incomes since 2001. Nationally, they are almost five times higher than the average household income, while just a decade ago that ratio was at 3.2. (Some cities are hotter than others: Vancouver's ratio currently sits at 10 times higher than average household income, Toronto's is at 6.7, Montreal's is at 4.5, while Halifax's is at 3.8.)

Among those who've been most publicly cautious are Mark Carney, Governor of the Bank of Canada, who's repeatedly, publicly fretted about personal debt loads. Julie Dickson, who regulates banks as head of the Office of the Superintendent of Financial Institutions (OSFI), has said her folks are "stepping in to increase the monitoring" of home loans and lines of credit secured by real estate. Working with Mr. Carney and Finance Minister Jim Flaherty, she hopes to send "an early warning" to the banks.

At the same time, the federal government's Canada Mortgage and Housing Corporation is approaching its $600 billion self-imposed limit on issuing mortgage default insurance. (It's now at $541 billion or so.)

It's at the limit because lenders have been aggressively buying portfolio insurance for the low-equity mortgages (less than 20 per cent homeowner equity) they hold. These mortgages are, therefore, at greatest risk of default.