Is the Canadian housing market ‘really’ exuberant? Evidence from Vancouver, Toronto and Montreal

20 Years of Research on Real Estate Bubbles, Risk and Exuberance: A Bibliometric Analysis

“…These literature studies investigated the trend and volatility in real estate prices, as well as identified the risk factors of price collapse. For example, Rherrad et al (2019) [35] explored the dramatic fluctuations of the Canadian real estate market after the financial crisis, and confirmed the Canadian real estate bubble and its contagion with the method of bubble monitoring. Oikarinen et al (2018) [36] discovered the spatial heterogeneity of housing price dynamics in 70 U.S. metropolises, and analyzed the relationship between income elasticity and housing price elasticity, as well as the size and duration of the bubbles.…”

Volatility Spillover and International Contagion of Housing Bubbles

“…Although the DCC-GARCH allows for detecting the correlation in price volatility, it does not allow detecting bubble contagion consistently (Orskaug 2009). This leads researchers to focus on a more recent non-parametric method using local kernel regressions developed by Greenaway-McGrevy and Phillips (2016) to determine the presence of bubble contagion between the real estate markets (see Caspi 2017;Hu and Oxley 2018;Gomez-Gonzalez et al 2018;Rherrad et al 2019Rherrad et al , 2020.…”

“…In addition to this transaction channel, Richter and Werner (2016) also suggested three other channels of international capital flows on housing markets which are direct credit, indirect channel, and interest rate. Empirical evidence of bubble migration between regional housing markets has been highlighted in several countries, including the United States (Xie and Chen 2015;Cohen and Zabel 2020), China (Deng et al 2017), New Zealand (Greenaway-McGrevy and Phillips 2016), Israel (Caspi 2017), and Canada (Rherrad et al 2019(Rherrad et al , 2020. Other papers also found evidence of international transmission of housing prices (Gomez-Gonzalez et al 2018;Engsted et al 2016;Bago et al 2021).…”

“…Third, we estimate real estate bubble contagion using Greenaway-McGrevy and Phillips's (2016) non-parametric model with time-varying coefficients. Our methodology is related to previous studies in the literature that have documented the existence and migration of episodic bubbles in housing markets (Case and Shiller 2003;Fraser et al 2008;Schwartz 2009;Gelain and Lansing 2014;Engsted and Pedersen 2015;Engsted et al 2016;Greenaway-McGrevy and Phillips 2016;Caspi 2017;Hu and Oxley 2018;Rherrad et al 2019Rherrad et al , 2020. It is important to mention that controlling for economic fundamentals is critical to identify actual bubble episodes in real estate markets (Phillips et al 2015).…”

“…It is important to mention that controlling for economic fundamentals is critical to identify actual bubble episodes in real estate markets (Phillips et al 2015). Most of the studies in the literature, aiming at detecting housing bubbles, used price-to-rent ratio to account for the economic fundamentals (see Yiu et al 2013;Gomez-Gonzalez et al 2015, 2018Greenaway-McGrevy and Phillips 2016;Hu and Oxley 2018;Shi et al 2016;Rherrad et al 2019Rherrad et al , 2020. As in these papers, an explosive behavior in price-to-rent ratio is considered a sufficient condition for the existence of a bubble.…”