The Elusive Canadian Housing Bubble, Submitted by Alec Pestov
This paper explores the subject of a possible housing bubble in Canada.
It examines a diverse array of factors that may have contributed to the
rise in house prices in Canada. The paper evaluates each factor
individually and determines the health of the Canadian housing market
using common valuation techniques.
Results suggest that economic
fundamentals in Canada provide little explanation for the Canadian
house price dynamics. Market fundamentals have become insignificant in
affecting house prices, and the price-momentum conditions
characteristic of a bubble now exist. The extreme decoupling of the
market prices from the underlying fundamentals suggests an upcoming
correction in housing prices in Canada.