Canada's Housing Market Defies Expectations as Prices Near Record Highs

Canadian housing market research by the Bank of Canada suggests that rate cuts can actually worsen affordability, not improve it. The study found that lower interest rates boost demand and drive up prices for up to two years before new supply comes online.

This finding contradicts the traditional view that rate cuts create excess demand and stimulate price growth. Instead, the researchers conclude that rate cuts do not address housing affordability issues but may even exacerbate them.

Despite the supposed 'largest correction in history' according to some industry reports, most Canadian provinces are actually seeing home prices near record highs. Only British Columbia and Ontario have experienced significant drops in prices, while other provinces remain close to their peak values.

Households in Canada continue to accumulate debt, but mortgage debt growth has slowed. Meanwhile, consumer credit has increased by 4.8% over the past year, one of the highest rates in over 16 years. This trend is consistent with studies showing that consumer credit tends to rise after a housing boom as recent buyers tap into credit.