Canada has built fewer new homes relative to population growth than other advanced economies, but this alone cannot explain the much larger rise in house prices during the last decade. Looser credit conditions have played the dominant role by far, with mortgage growth accelerating sharply during the pandemic and the cost of that debt falling as households shifted to variable rate mortgages. As a result, the commonly held view that house prices will remain well above their pre-pandemic level could prove too optimistic if lenders tighten credit more substantially.
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