I've moved away from the bubble theory towards stagnation for some months but I must say I'm starting to get the feeling we might have at least a bit of both. That is price declines followed by a sustained period of stagnation.
So why the change? The reason is that we keep piling on debt and the central bank is basically freaked out because they can neither raise nor lower interest rates independent of the situation in the US. Contrary to the previous poster's view, the re-inflation of prices from the spring has been made possible exclusively through an increase in household debt. Government keeps trying to make it easier, not harder to buy a house through incentive and legal changes.
Compare conditions today to the early 90's. The stock market crashed in late 89, comparable to our late 2008. However, the crap didn't really hit the fan in the real estate and development industry until 3 years later. So for us that would be hypothetically end of 2011. The good news is that debt carrying costs are lower now than they were back in 89. The bad news is that we have way more debt relative to income and we are inflating debt pushing carrying costs towards the early 90's benchmark that precipitated a crash. The frightening news is that we are doing this with interest rates at historic lows, effectively zero, so only a small move upwards in rates will push people towards debt servicing costs that would historically precipitate a crash. This is not just an issue for variable-rate mortgage holders. Fixed rate holders renewing in 2011, 2012, and 2013 will be hammered in waves if interest rates rise only marginally.
This issue is much larger than if Canada is out of recession or not in this quarter or any of the next 6 quarter. Even if employment numbers turn around and we return to full employment conditions (which we will not), it will not make a difference. Interest rates and debt levels must trend towards historic norms some way or another over the next decade. The consequence must be either price declines, price stagnation, or a combination of price stagnation and decline in unknown proportions.