When prices get bid up way ahead of fundamentals then corrections occur as we have seen in California, Florida, Japan, Dubai, Greece, Ireland, Spain, etal. The problem is not that prices drop but that the debt used to chase the prices up does not decline with the price.
The extreme example is the Netherlands where the percent household debt to income remains at +/- 250% (2012) and yet their housing index has plummeted +/-20% in the last 5 years.
The debt remains to be transformed into equity by the long process of amortization while the debtor continues to face depreciation, repair, and income risk. The alternative is the shorter trip to the foreclosure courts. But in Canada:
Almost all Canadian mortgages are “full recourse” loans, meaning that the borrower remains fully responsible for the mortgage even in the case of foreclosure. If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower’s other assets and even take legal action to garnish the borrower’s future wages.