Klyuev, V. (2008), “What Goes Up Must Come Down? House Price Dynamics in the United States,” IMF Working Paper 08/187, Washington, DC: International Monetary Fund, July.
Tsounta (2009), “Is the Canadian Housing Market Overvalued? A Post-Crisis Assessment,” IMF Working Paper 09/235, Washington, DC: International Monetary Fund, October.
Prepared by Evridiki Tsounta.
There are numerous measures of house prices available in Canada, including new house price index provided by Statistics Canada, existing home prices provided by the Canadian Real Estate Association (CREA) and the Teranet-National Bank existing home price index. While the latter is similar to the Case-Shiller index, CREA’s sales weighted index remains the most widely used given its larger sample size (all provinces, more years, all multiple listing sales by realtors). This measure exhibits the largest volatility, including large upswings, does not take into account compositional effects, and in that respect it should represent an upper limit in terms of any deviations from economic fundamentals. Our analysis is based on the CREA index unless otherwise noted.
Tsounta (2009) provides a more detailed discussion of the macro-financial linkages surrounding the housing sector and the vulnerabilities amid highly indebted Canadian households.
Chapter 5 provides a more detailed discussion of the Canadian mortgage market.
For example, in late 2006, new house prices in Alberta were 50 percent higher than a year ago (up 97 percent from end-2002 to their peak in late-2007) with more sustained increases in Saskatchewan (up over 120 percent between end-2002 and their peak in mid-2008). In contrast, prices in the rest of Canada exhibited more moderate increases, rising at most by around 13 percent (in Fall 2006) on an annual basis (up 41 percent between end-2002 and their peak in early 2008).
The two provinces comprise 50 percent of Canadian economic activity and host over half the Canadian population.
For more details on the harmonized sales taxes in Ontario and British Columbia, please refer to TD Economics (2010).
Higher priced new houses would be directly impacted by the harmonization; TD Economics (2010) estimates than a C$650,000 new house would cost C$4,500 more in Ontario and C$2,000 more in British Columbia.