Rate Cuts Worsen Housing Affordability, BoC Study Warns

A new study from the Bank of Canada has found that rate cuts can actually worsen housing affordability. The researchers discovered that demand for housing responds quickly to lower interest rates, but supply takes significantly longer to increase.

The study found that resales rise shortly after rate cuts, with the full boost seen 18 to 24 months later. In contrast, new supply takes up to two years before it really picks up, according to the research.

Builders aren't just responding to cheaper financing; they're also motivated by higher profit margins. This delay of roughly two years is due in part to excess demand boosting prices and lowering financing costs, which boost project viability for builders.