The debate among economists as to the extent of Canada’s housing bubble seems to be divided between the more sanguine views of those who actually reside in Canada versus those who are observing the situation from afar.

In mid-December, for instance, Deutsche Bank reported the results of a study that ranked the housing markets of 20 developed-world countries by valuation relative to historical averages. The report asserts that home prices in Canada are 60 percent above the historical norm, which gives our neighbor to the north the dubious distinction of having the most overvalued real estate market in the world.

Deutsche arrived at this conclusion by averaging two sets of data points furnished by the Organisation for Economic Co-operation and Development (OECD): the price-to-rent ratio and the home price-to-income ratio. By these measures, Canada’s home prices are 88 percent and 32 percent above normal levels, respectively, with the average of these two data resulting in Deutsche’s conclusion that the country’s housing market is 60 percent overvalued.

However, economists with Toronto-Dominion Bank describe Deutsche’s methodology as flawed because Canada’s rental market is subject to government-mandated price controls. So if prices of rentals are being kept artificially low, then that means the first of the two measures employed by Deutsche likely overstates relative valuation levels.

With its own approach, by contrast, TD says that Canada’s real estate market is just 7 percent overvalued. The bank arrived at this figure by trying to gauge the affordability of housing, based on monthly mortgage payments as a percentage of income, as well as factoring in the prevailing historically low mortgage rates.

Meanwhile, the Canada Mortgage and Housing Corporation (CMHC), the government-owned agency that provides mortgage insurance to protect lenders against default, recently issued its own review of the Canadian housing market. In contrast to various doomsayers, the CMHC sees a healthy market overall and believes this condition will persist through 2014.

The agency based this conclusion on numerous data, including the sales-to-new listings ratio (SNLR), which shows a balanced market. According to the CMHC, a stable market should have an SNLR ratio between 40 percent and 55 percent, a range that suggests neither a shortage of available housing, which would drive prices higher, nor an abundance of housing, which could lead to price declines. During the first two quarters of 2013, this metric averaged 51.1 percent.

Meanwhile, the agency notes that mortgage borrowing grew just 5.2 percent over the trailing-year period ending in April, which is well below the 9.3 percent annualized growth rate for the 10-year period that ended in 2010. In other words, the market may be moderating.

At the same time, as we’ve noted on several occasions previously, Canadians continue to administer to their debt burdens in a responsible manner, with mortgage defaults remaining at low levels–0.31 percent in June, for example, versus 0.33 percent a year earlier.

Still, the high price of Canadian real estate has contributed toward a modest erosion in consumer confidence the past two months, as measured by the Bloomberg Nanos Canadian Confidence Index, though it ticked up again at year end. Even so, the final survey for 2013 showed the percentage of respondents who believe real estate prices will rise over the next six months was just 34.6 percent.

It’s tempting for US observers to extrapolate the painful experience of our own housing bubble to what’s occurring presently in Canada. However, the financial system there is generally more conservative than the one in the US, while regulators have already intervened on several occasions over the past few years to rein in mortgage lending.

While Canada didn’t suffer a housing crash like the one in the US, that doesn’t mean the country is immune from the fundamental aspects of human nature that cause markets to push prices far higher than what seems reasonable, and then correct much harder than what seems reasonable. And it’s hard to imagine a country of just 35 million amid an anemic recovery can sustain a market where the national average home price was just over CAD391,000 in November.

While no one seems to be arguing that Canadian real estate is fairly valued, the question remains whether the country’s policymakers can engineer a soft landing. We believe that’s possible, though experiences could differ region by region, particularly in overheated markets such as Vancouver and Toronto.