sustained and targeted increase in supply<\/a>, but in the short-term, TD Chief Economist Beata Caranci believes that the fastest way to address what she calls \u201crampant home prices in Canada\u201d is by raising interest rates.<\/p>\n\u201cThe quickest route to cooling this market and squeezing out speculation comes down to the interest rate channel,\u201d Caranci wrote in commentary published earlier this month on the TD Economics website.<\/p>\n
Noting that Canada experienced a larger overall cut to mortgage rates relative to other countries recently, Caranci said that the Bank of Canada\u2019s current stance of keeping its mortgage market-influencing overnight rate extremely low for potentially several more years is \u201cno longer appropriate\u201d considering how red-hot the housing market has been for nearly a full year now.<\/p>\n
Instead of trying to tamp down homebuyer demand through \u201cadditional complex rules\u201d like taxes and a more stringent mortgage qualification process, the economist suggests that policymakers should look to the principle of Occam\u2019s Razor in which the simplest explanation is usually the right one.<\/p>\n
Caranci describes the sharp drop in mortgage rates as the catalyst that drove the jump in sales and sustained demand for housing, so the simplest and most effective solution to cooling the market is then hiking rates.<\/p>\n
To fully address the market\u2019s current challenges, in the longer term Caranci also supports a more robust effort to collect data on home flipping and investor activity in the market as well as government action to reduce barriers to home building and create more affordable rental supply.<\/p>\n
![\"interest-rates-cool-canada-housing-market\"](\"https:\/\/www.livabl.com\/articles\/wp-content\/uploads\/2021\/04\/interest-rates-cool-canada-housing-market.jpeg\")
<\/a>Photo:\u00a0Oliver Mallich\/Flickr<\/a><\/em><\/p>\n