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During the worst of the U.S. real-estate collapse in 2008, the Miami skyline was a grim barometer of deteriorating market conditions.

By day, everything looked just fine. The mirrored façades of newly built condos would shimmer across the waters of Biscayne Bay. Nighttime exposed the unfortunate truth: dark, empty towers containing thousands of unsold, foreclosed or abandoned units.

Look back at downtown Toronto from the waterfront at night, and for the most part, the lights are still burning bright.

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That’s the good news.

But some analysts worry that Toronto and other once-booming Canadian housing markets are in the early stages of a major correction. Average home prices across Canada suffered a third consecutive double-digit decline in March compared with the same month last year, dropping 10.4 per cent to $491,000. Leading the way were even larger price declines in Toronto and Vancouver.

The sudden drop may be a harbinger of a deeper price collapse, triggered by rising interest rates, new tighter mortgage rules and rising affordability problems, according to economist David Rosenberg of Gluskin Sheff + Associates.

“The correction in Toronto home prices is only in its infancy,” Mr. Rosenberg warned in a research note last week. Prices have tumbled roughly 10 per cent in the past year, but Mr. Rosenberg estimates that it will take a 40-per-cent drop to get the market “back to what has been normal in the pre-bubble past.”

For Mr. Rosenberg, the biggest problem is affordability. It now takes eight years of family income to buy a home in Toronto, more than double the long-run mean of four years. And across Canada, affordability remains well above the long-term average.

That dire view of the state of the housing market is not shared by Bank of Canada Governor Stephen Poloz. He looks at the housing market and sees more of a temporary blip than a major correction, caused mainly by January’s introduction of new stricter qualification rules for getting an uninsured mortgage. The central bank’s conclusion is that people rushed to buy homes late last year before the new rules came in, leading to a sharp slowdown in activity early this year. The bank says those rules will dampen, but not kill, demand.

“The underlying fundamentals of demand remain very solid,” Mr. Poloz assured reporters last week in Ottawa after the central bank announced that it was keeping its benchmark interest rate unchanged at 1.25 per cent.

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Mr. Poloz points to continuing strong housing starts across the country as a sign that demand for homes and condos remains healthy, sustained by such factors as wage growth and immigration. Over the past six months, builders have started work on new homes at an annual rate of nearly 230,000 – well above the 185,000 average of the past four decades.

Nonetheless, the central bank’s latest monetary policy report continues to list the threat of a housing price crash among the main risks facing the Canadian economy.

And there are signs that all is not well in pockets of the housing market. Developers in the Toronto area walked away from 17 partly sold but unbuilt condo projects last year due to rising risks, according to real estate analytics firm Altus Group Ltd. That’s up from seven cancelled projects in 2016.

Also worrying is the proliferation of highly leveraged investors who buy condos for the explicit purpose of renting them out. Last year in the Greater Toronto Area, 48 per cent of buyers who took possession of new condos did so to turn them into income properties, according to a recent report by CIBC World Markets and Urbanation Inc. And nearly half of new investor-owners who have mortgages are already underwater – meaning they aren’t earning enough in rent to cover their interest costs and condo fees.

Interest rate hikes in the months ahead would further destabilize prospects for home owners and developers.

If it makes you feel any better, take the 9 p.m. ferry to Toronto’s Centre Island or drive out to Vancouver’s Stanley Park, and soak in the view.

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If the lights are on, you know things could still get a lot worse.

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