IDEAS home Printed from https://ideas.repec.org/a/ire/issued/v17n012014p109-135.html
   My bibliography  Save this article

Bubble, Bubble ¡V Is there House Price Trouble -- in Canada?

Author

Listed:
  • Marsha J. Courchane

    () (Vice President & Practice Leader; Charles River Associates, Washington, DC)

  • Cynthia Holmes

    () (Ted Rogers School of Management, Ryerson University, Toronto, CA;)

Abstract

Canadian and U.S. real estate markets have compared similarly along dimensions such as inflation, mortgage interest rates, population and income growth and other measures. With respect to house prices, however, the series have moved in similar ways at some times, but then significantly diverged by the second quarter of 2007. For example, Canadian and U.S. house price indices reached essentially identical levels in 1987Q2, 1995Q1 and 2007Q2. As a consequence of the U.S. financial crisis and precipitous decline in house prices, the U.S. and Canadian indices have sharply diverged. Our paper examines whether or not the house price indices were driven by fundamentals during these time periods, or whether they diverged from fundamentals. We find that the U.S. house prices closely aligned with fundamentals until the mortgage markets crashed in 2008. We find that Canadian house prices continue to align with fundamentals. However, there have been some significant market changes between the two countries and key housing market measures indicate that Canadian markets are now moving along some paths similar to those taken by the U.S. prior to the crash.

Suggested Citation

  • Marsha J. Courchane & Cynthia Holmes, 2014. "Bubble, Bubble ¡V Is there House Price Trouble -- in Canada?," International Real Estate Review, Asian Real Estate Society, vol. 17(1), pages 109-135.
  • Handle: RePEc:ire:issued:v:17:n:01:2014:p:109-135
    as

    Download full text from publisher

    File URL: http://www.umac.mo/fba/irer/papers/current/vol17n1_pdf/05.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Harmon, Oskar R., 1988. "The income elasticity of demand for single-family owner-occupied housing: An empirical reconciliation," Journal of Urban Economics, Elsevier, vol. 24(2), pages 173-185, September.
    2. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
    3. Mikhed, Vyacheslav & Zemcík, Petr, 2009. "Do house prices reflect fundamentals? Aggregate and panel data evidence," Journal of Housing Economics, Elsevier, vol. 18(2), pages 140-149, June.
    4. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    5. Joshua Gallin, 2006. "The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 417-438, September.
    6. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2013. "A Dynamic Model Of Housing Demand: Estimation And Policy Implications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 409-442, May.
    7. Jesse M. Abraham & Patric H. Hendershott, 1994. "Bubbles in Metropolitan Housing Markets," NBER Working Papers 4774, National Bureau of Economic Research, Inc.
    8. repec:arz:wpaper:eres2009-275 is not listed on IDEAS
    9. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
    10. William C. Wheaton & Gleb Nechayev, 2008. "The 1998 ?2005 Housing "Bubble" and the Current "Correction": What’s Different This Time?," Journal of Real Estate Research, American Real Estate Society, vol. 30(1), pages 1-26.
    11. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics,in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022 Elsevier.
    12. Jason Allen & Robert Amano & David P. Byrne & Allan W. Gregory, 2009. "Canadian city housing prices and urban market segmentation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1132-1149, August.
    13. Petr Zemcik & Vyacheslav Mikhed, 2009. "Do House Prices Reflect Fundamentals? Aggregate and Panel Data Evidence," ERES eres2009_275, European Real Estate Society (ERES).
    14. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
    15. Goodman, Allen C. & Thibodeau, Thomas G., 2008. "Where are the speculative bubbles in US housing markets?," Journal of Housing Economics, Elsevier, vol. 17(2), pages 117-137, June.
    16. Dennis R. Capozza & Patric H. Hendershott & Charlotte Mack & Christopher J. Mayer, 2002. "Determinants of Real House Price Dynamics," NBER Working Papers 9262, National Bureau of Economic Research, Inc.
    17. Dennis R. Capozza & Charlotte Mack & Patric H. Hendershott & Christopher J. Mayer, 2002. "The Determinants of House Price Dynamics," ERES eres2002_106, European Real Estate Society (ERES).
    18. Patric H. Hendershott, 1980. "Real User Costs and the Demand for Single-Family Housing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 401-452.
    19. Mayo, Stephen K., 1981. "Theory and estimation in the economics of housing demand," Journal of Urban Economics, Elsevier, vol. 10(1), pages 95-116, July.
    20. Coleman IV, Major & LaCour-Little, Michael & Vandell, Kerry D., 2008. "Subprime lending and the housing bubble: Tail wags dog?," Journal of Housing Economics, Elsevier, vol. 17(4), pages 272-290, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    House Prices; Mortgage Markets;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ire:issued:v:17:n:01:2014:p:109-135. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IRER Secretary Office/Webmaster). General contact details of provider: http://www.asres.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.