OTTAWA - One of the first economists to accurately predict America's housing meltdown is warning Canadians they could face something similar if steps are not taken to restrain the sector.

Dean Baker of the Washington-based Centre for Economic and Policy Research says he sees no reason why average home prices in Canada should be about 50 per cent higher than in the United States.

Noting that average incomes in Canada are lower than those in the U.S. and land values are not appreciably higher, the fundamentals don't justify the price premium, Baker said in an interview.

"It looks me like you have some real problems," he said.

"There's a lot of things that look ominous. Debt to income ratios in Canada are close to what they were in the U.S. at the peak of the bubble, so there could be some pretty serious fallout."

Canada could see house prices collapse by 25 to 30 per cent if interest rates rise by about two percentage points, he said.

Baker, who will expand on his views Thursday at a speech in Ottawa at a conference of the Canadian Centre for Policy Alternatives, said the federal government should look at further tightening requirements for obtaining mortgages and that the Bank of Canada should consider raising interest rates to discourage marginal borrowers.

Baker was recently given the Revere Award along with two others for being the first to sound the alarm on the U.S. housing bubble, five years before it burst.

Canada's hot housing market has been one of the strongest sectors to come out of recession in terms of both volume and prices.

The average price of resales peaked at record $346,881 in May, although there has since been a modest retreat to $337,842 in October, the Canadian Real Estate Association reported this week.

Bank of Canada governor Mark Carney has also repeatedly cautioned Canadians against taking on too much debt given that mortgage rates will need to rise in the next few years.

The bank has raised its policy rate a full point since June, although until Wednesday -- when TD Canada Trust and Royal Bank hiked five-year mortgages a quarter point to 5.44 per cent -- it has had little impact on long-term loans.

Whether Canada has a housing bubble is still a matter of debate, however, even if most analysts agree historically low mortgage rates are fuelling the market beyond fundamentals.

"Can current prices go down, absolutely. Are we overshooting, absolutely. But are we going to crash, no," says Benjamin Tal, an economist who has written extensively on housing for CIBC.

Tal does not dispute Baker's data, but he says there's a world of difference between the U.S. market and Canada's, including what he calls the quality of debt.

Unlike in the U.S., very few Canadians have less than 20 per cent equity in their homes, he points out.

As well, he notes that lower-income Canadians, those most vulnerable to rising interest rates, are the most likely to have longer-term fixed mortgages. Lastly, he says 40 per cent of Canadian homeowners are currently in accelerated payment schedules, which they could withdraw from if need be.

"The problem with the U.S. is not that they had a 150 per cent debt to income ratio, the problem they had was bad debt," he explained, with many homeowners unable to withstand a price drop or higher mortgage payments.

By his calculation, homes in Canada are only about 10 per cent overpriced.

Baker agrees that Canada is not as vulnerable as the U.S. was during its bubble, but said given the importance of housing to the economy, policy-makers should take precautionary measures.

He says the U.S. is now paying for seven years of excess when inflated home values triggered an unsustainable boom in construction and consumption.

"We had seven years of an unsustainable growth path, so it was easy to see it was going to end badly and the longer it went on the worse the ending would be."