Local Affordability, House Price Forecasting, and Vulnerabilities

43 Pages Posted: 4 Apr 2019

See all articles by Tom Roberts

Tom Roberts

Government of Canada - Bank of Canada

Date Written: January 31, 2019

Abstract

I find that high home-buying costs for a typical household, relative to a cumulative city-level average, help to predict downward pressure on future real house price growth at a 1-year horizon for Canadian cities over the 1980q1 to 2016q2 sample period. This insight is relevant for broader household vulnerabilities because of their interdependence with housing market conditions --- this interdependence is illustrated, for instance, by how a decline in house prices Granger-causes an increase in mortgage arrears. Based on ease of interpretability, relevant historical context, and in- and out-of-sample performance, local housing cost (i.e. affordability) measures may have some advantages for the monitoring of household sector vulnerabilities, versus other common measures such as debt-to-income.

Keywords: Asset Pricing; Housing; Financial Stability

JEL Classification: G12; G17; R21; R31

Suggested Citation

Roberts, Tom, Local Affordability, House Price Forecasting, and Vulnerabilities (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=3351444 or http://dx.doi.org/10.2139/ssrn.3351444

Tom Roberts (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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