Demand roars, supply whispers: Monetary policy and housing in Canada

Stéphane Surprenant

No 2026-52, Staff Analytical Papers from Bank of Canada

Abstract: We examine the effects of monetary policy shocks on the Canadian housing market. Using high-frequency surprises around fixed announcement dates as an instrument in a Bayesian VAR, we estimate the responses of house prices, housing starts, building permits, resales, inventories, and mortgage purchases to a contractionary monetary policy shock. An increase in the policy rate leads to a substantial and persistent decline in average house prices. Housing starts and building permits fall, but their implied effects on the future housing stock are both slow and modest. Interpreted through the lens of market equilibrium, these results are most consistent with a stronger response of housing demand than housing supply. Mortgage purchases provide additional evidence in support of this interpretation.

Keywords: Monetary policy; Monetary policy framework and transmission (search for similar items in EconPapers)
JEL-codes: C C3 C32 E E5 E52 R R3 R31 (search for similar items in EconPapers)
Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsap:26-52

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