To mitigate the economic downturn caused by the pandemic, the Bank of Canada cut interest rates three times in 2020. As a result, the five-year fixed-rate mortgage, the most common mortgage in Canada, has remained below two per cent over the past year.
Canadians, predictably, rushed to seize the opportunity. No one can blame them, given that the prospect of becoming homeowners gets more difficult with every generation. What happened next is Econ 101: a demand shock overwhelmed the supply and prices rose. The average home is 25 per cent more expensive than in 2020.
But that is not all. Pandemic-containment measures also changed the housing market’s behaviour.
While the monthly cost of homeownership declined, lockdowns prevented families from spending on travel, leisure, restaurants and other treats. Then remote work and online education encouraged households to invest those pandemic-induced savings in bigger homes, where they were spending all day. With skyrocketing prices, speculation kicked in.
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