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Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada

Author

Listed:
  • Nishaad Rao
  • Tao Wang

Abstract

We use Canadian data to examine how monetary policy affects house prices and the consumer price index for rent (CPI-rent) through exogenous changes in the mortgage interest rates. Nationwide, tighter monetary policy lowers house prices but raises CPI-rent, likely due to higher user costs for landlords or greater relative demand for rental housing. City-level analysis shows that, in response to tighter monetary policy, house prices fall most in cities where supply is inelastic, while CPI-rent tends to rise in cities with lower proportions of households moving from renting to owning.

Suggested Citation

  • Nishaad Rao & Tao Wang, 2026. "Channels of Transmission: How Mortgage Rates Affect House Prices and Rents in Canada," Staff Analytical Papers 2026-2, Bank of Canada.
    • Handle: RePEc:bca:bocsap:26-2
    DOI: 10.34989/sap-2026-2
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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