Is the Canadian housing market 'really' exuberant? Evidence from Vancouver, Toronto and Montreal.

Since the 2008 financial crisis, federal and provincial governments in Canada has consistently monitored its housing market. However, real estate markets in Canada seem to have significant regional imbalances with moderate evidence of overheating and price exuberance and strong evidence of over-evaluation for several quarters. In this perspective, this paper seeks to test the existence of real estate bubbles in Canada and their contagion. Our methodology, based on monthly data, relies on two steps: First, we build on a GSADF test developed by Phillips, Shi, and Yu (2015) to detect bubbles. Second, using a method developed by Greenaway-McGrevy and Phillips (2016), a non-parametric regression with time-varying coefficient, we verify if, in case of bubbles, there is a contagion among Canadian cities. Our results suggest that there are bubbles in the real estate markets of Toronto and Vancouver, while this is not the case for Montreal. [ABSTRACT FROM AUTHOR]