Another factor are speculators. They too would take out zero down, interest only loans for a few months and then resell the house pocketing the appreciated value. I've heard of people with multiple loans/homes. It sounds like a ponzie scheme to me... thus driving the prices of home up even more.

Low interest rates helped fuel this. I also believe that because mortgages are effectively subsidized via the tax code, housing prices are adjusted upwards to account for the "tax savings"

That isn't something the Canadian government does.