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Is the Canadian Housing Market Overvalued? A+L4242 Post-Crisis Assessment

  • Evridiki Tsounta
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    Canadian house prices have increased significantly between 2003 and early 2008, with a marked downward trend since mid-2008, especially in the resource-rich western provinces. This paper estimates the evolution of equilibrium real home prices during this period in key provinces and finds that, following recent declines, home prices are now generally close to equilibrium throughout Canada. However, house prices in Alberta and British Columbia remain around 8 percent overvalued at the end of the sample (second quarter of 2009). Despite the limitations of econometric estimates of house-price dynamics, the measured small degree of overvaluation suggests that the Canadian housing market is essentially at equilibrium.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/235.

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    Length: 20
    Date of creation: 01 Oct 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/235
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    1. Refet S. Gürkaynak, 2008. "Econometric Tests Of Asset Price Bubbles: Taking Stock ," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 166-186, 02.
    2. 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.
    3. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
    4. John Kiff, 2009. "Canadian Residential Mortgage Markets; Boring But Effective?," IMF Working Papers 09/130, International Monetary Fund.
    5. Stephen Malpezzi, 1998. "A Simple Error Correction Model of House Prices," Wisconsin-Madison CULER working papers 98-11, University of Wisconsin Center for Urban Land Economic Research.
    6. Vladimir Klyuev, 2008. "What Goes Up Must Come Down? House Price Dynamics in the United States," IMF Working Papers 08/187, International Monetary Fund.
    7. Hajime Tomura, 2008. "A Model of Housing Boom and Bust in a Small Open Economy," Working Papers 08-9, Bank of Canada.
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