Explainer: How does the Bank of Canada have an impact on your housing plans

The Bank of Canada maintained the benchmark overnight lending rate at five percent on Wednesday, the highest level in 22 years. The bank has also acknowledged a rapid downshift in the economy and warned that price pressures are proving tough to wrestle all the way back to their target.
Well, the Bank of Canada's influence on the housing market is a critical factor that plays a key role in shaping Canadians' housing plans. Here’s an understanding of how the bank’s decision on interest rates makes an impact on the housing market:
Interest Rates and Mortgage Costs:
One of the most direct ways the Bank of Canada impacts the housing market is through its control of the policy interest rate. When the central bank raises interest rates, it becomes more expensive to borrow money. This directly affects mortgage rates, as higher mortgage rates mean increased borrowing costs for homebuyers. As a result, monthly mortgage payments go up, potentially reducing the purchasing power of buyers and making homeownership less affordable.
Affordability and Housing Demand:
Rising interest rates can cool down the housing market by making it more difficult for prospective buyers to qualify for mortgages. This can lead to a decrease in demand for homes, which, in turn, can put downward pressure on housing prices. That means, if the bank continues to raise interest rates, it may result in more affordable housing prices for potential buyers.
Influencing Economic Conditions:
The Bank of Canada closely monitors economic conditions, and its interest rate decisions are often influenced by the state of the economy. Economic factors such as job growth, inflation rates, and GDP growth can influence the central bank's monetary policy. The housing sector also plays a key role in contributing to the economy by stimulating economic activity.
Rise of Supply Challenges:
The Bank of Canada's policies can indirectly affect the housing supply. When interest rates are low, it may incentivize developers to build more housing units to meet increased demand. On the other end, higher interest rates can prove to be a hiccup to new construction due to increased borrowing costs, potentially leading to housing supply shortages.
However, the increasing interest rates may work well for millennials as the absence of affordable housing can be addressed with the decline in housing rates across Canada.