It could well become the cocktail-party question of the holiday season: Is Canada’s gravity-defying housing market headed for a fall?

Britain’s venerable magazine The Economist says Canada is one of nine countries in the world where housing is overvalued by 25 per cent or more right now — and among four where prices are in line with those in the U.S. “at the peak of its bubble.”

It’s the B-word being heard halfway around the world and comes in the wake of a recent Bank of America Merrill Lynch report that warned Toronto’s record-setting pace of condo construction could see a significant correction over the next two years.

Are the predictions alarmist, common sense or simply sour grapes from countries being crushed by the economic fallout of the subprime and euro zone crises?

“I think the (Canadian) housing boom is over,” says Benjamin Tal, deputy chief economist at CIBC World Markets Inc. who agrees that Canada’s housing sector is “overshooting.”

“The only question now is how do we correct? I think the most likely scenario is that the housing market will stagnate over the next three to four years” until prices fall back in line.

The Economist notes that much of the world’s economic woes can be traced back to years of unprecedented growth in house prices in countries such as the United States and Ireland, culminating with “the bursting of the biggest bubble in history.”

Home prices in the U.S. have dropped 34 per cent since 2006. In Ireland they’ve plummeted by almost half since the Celtic Tiger lost its roar.

In the last year alone, they’ve climbed 5.5 per cent across Canada according to October statistics.

“In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued,” the magazine claims.

Real estate watcher Ben Myers of Toronto’s Urbanation called The Economist’s methodology “flawed,” saying it’s too simplistic to properly assess the health of a market as regionally varied as Canada’s.

It also doesn’t take into account how the strength of our banking sector has made Canada a safe haven for investors looking to buy up hard assets like real estate. It’s estimated that some 45 to 60 per cent of the 43,000 condos now under construction across the GTA have been pre-purchased by investors, most of whom intend to hold and rent them out.

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Given tough lending standards in Canada, there are very few homeowners — less than 5 per cent — at risk of being overextended on mortgages, statistics have shown. So it would take a “trigger” like escalating interest rates to send real estate prices crashing here, and they’re unlikely to start even edging up until 2013, says Tal.

That should give homeowners time to get their financial houses in order, and there are “encouraging signs” that’s happening.