Is Canada’s housing market “an accident waiting to happen” as a recent report suggests, or are Canadian housing policies working well to “mitigate the risk of a massive wave of defaults in the future” as another report suggests?

The first report, by David Macdonald of the Canadian Centre for Policy Alternatives, says Canada has a housing bubble because house price increases in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa between 1980 and 2010 “are outside of a historic comfort level.”

“The bursting of housing bubbles is a rare event in Canada, but the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen,” says Macdonald.  “As house prices rise outside of their historical range they become much more susceptible to mortgage rate changes. The hottest six real estate markets could be in for a correction at best or, at worst, a bubble burst. Rate setters at the big banks are in the driver’s seat now as mortgage rates inch up. They need to hit the brakes lightly.”

But another report, by Jim MacGee of the C.D. Howe institute, concludes that Canadian housing policies have done a good job to ensure that a U.S.-style housing market crash is not likely to happen here.

“Canadian housing policies, which avoided the sharp decline in underwriting standards seen in the U.S, worked well in reducing the possibility of a housing bust in Canada during 2008-2009, and continue to mitigate the risk of a massive wave of defaults in the future,” says MacGee.

In a report released on Tuesday, Canada Mortgage and Housing Corp. predicts that existing home market conditions will remain balanced during the next two years as MLS sales ease and inventory levels remain elevated. It forecasts that “existing home sales will be in the range of 450,000 to 485,700 units in 2010, with a point forecast of 463,800 units. In 2011, MLS sales will move lower and are expected to be in the range of 425,000 to 490,700 units, with a point forecast of 456,000 units.”

It says that with an improved balance between demand and supply, the average MLS price is expected to edge lower through the end of 2010 and then rise modestly in 2011.

To view the Canadian Centre for Policy Alternatives report, click here.

To view the C.D. Howe Institute report, click here.

To view the latest CMHC housing forecast, click here.