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COMM350: Research Proposal

October 11th 2017


COMM350
Professor Peter Sephton
Jai Min Chung 10058905 Section 2
Shayne Rebello Section 1
Overview
For the final term research paper, our team has elected to assess the Canadian housing market. Over
the past 20 years, the housing market has experienced tremendous growth but has shown signs of
cooling down recently. This has lead the general public to worry as many believe that we are in the
midst of a housing bubble that is about to burst. On the other hand, others argue that the increase is
fundamentally justified. Additionally, the Bank of Canada is paying close attention to the housing market
as the fragility of the real estate market limits its ability to raise the interest rates and target inflation.
Clearly, the housing market is one of the most dynamic and complex components in the Canadian
economy today and is an important sector to understand .

We plan to model the housing market by considering 3 main factorsdemand for housing, supply of
housing and economic indicators. The question we are attempting to address is whether changes in
residential housing price level are due to fundamental reasons, such as shifts in demand and supply.
Furthermore, we would like to test if the housing market has gone through any structural change.
Ultimately, we would like to forecast the housing prices by also incorporating macroeconomic factors.

This topic is interesting because we are in the midst of one of the strongest housing bull markets ever
witnessed and affordability is a very pressing issue today especially for young adults. Purchasing real
estate is the single most expensive investment decision that young adults ever make. As future
homeowners and potential investors in real estate markets, it is important to understand the factors
that drive prices on a statistical level and predict future trends in the Canadian housing market.

Data
Dependent Variable:
Composite 11 House Price Index: indexed at Jun-2005, monthly, Source: TeranetNational Bank House
Price Index. (Victoria, Vancouver, Calgary, Edmonton, Winnipeg, Hamilton, Toronto, Ottawa-Gatineau,
Montreal, Quebec, Halifax)

Regressors:

Demand Side:
Average weekly earnings excluding unclassified businesses [11-91N] (V79311153): Survey of
Employment, Payrolls and Hours (SEPH), employment and average weekly earnings (including overtime)
for all employees by North American Industry Classification System (NAICS), seasonally adjusted,
monthly (Dollars), (Jan-2001 Jul-2017) Source: CANSIM

Employment Rate (LREM25TTCAM156S): Aged 25-54: All Persons for Canada, seasonally adjusted,
monthly (Jan-1995 May-2017), Source: FRED

Number of Immigrants in Canada (V29850342): International migration components, Canada, provinces


and territories, quarterly (Persons), (Mar-1946 Jun-2017), Source: CANSIM

Supply Side:
Housing Starts in Canada (V52300170): Canada Mortgage and Housing Corporation, housing starts, all
areas, Canada and provinces, seasonally adjusted at annual rates, monthly (Units) (Mar-1990 Jun-
2017), Source: CANSIM

Unabsorbed inventory (V1930754): Canada Mortgage and Housing Corporation, absorptions and
unabsorbed inventory, newly completed dwellings, by type of dwelling unit in census metropolitan
areas, monthly (Units), (Jun-1988 Aug-2017), Source: CANSIM

Economic Indicators:
2-year bond yield (V39051): Bank of Canada, money market and other interest rates, daily (Percent),
(Jan-1995 Oct-2017), Source: CANSIM

10-year bond yield (V39055): Bank of Canada, money market and other interest rates, daily (Percent),
(Jan-1995 Oct-2017), Source: CANSIM

Consumer credit and mortgage liabilities to disposable income (V62698065): National Balance Sheet
Accounts, financial indicators, households and non-profit institutions serving households, quarterly
(Percent), (Mar-1990 Jun-2017), Source: CANSIM

Real GDP, chained 2007 (V65201210): Gross domestic product (GDP) at basic prices, by North American
Industry Classification System (NAICS), seasonally adjusted at annual rates, monthly (Dollars) (Begin Jan-
1997 Jul-2017), Source: CANSIM

Retail trade (V52367097): Retail trade, sales by the North American Industry Classification System
(NAICS), seasonally adjusted, monthly (Dollars), (Jan-1991 Jul-2017), Source: CANSIM

Total outstanding mortgage (V122726): Residential mortgage credit, outstanding balances of major
private institutional lenders, Bank of Canada, seasonally adjusted, monthly (Dollars) (Jan-1969 Aug-
2017), Source: CANSIM