What are the determinants of housing prices?

Real estate prices continue to rise, leaving many households struggling to find a home. Increase of rates over the past two years should have lower housing prices substantially. However, this does not seem to be the case. So what are the real determinants of housing prices? The following text presents two opposing trends. One concerns the impact of interest rates on real estate prices. Another suggests that strong immigration to Canada has maintained high prices, limiting impact of rising interest rates on housing prices. Two perspectives The impact of interest rates During post-pandemic period, rates have increased very rapidly. From 2022 to 2023, they have increased tenfold, from .5% to 5%, as illustrated in the graph below. Source: Bank of Canada On the other hand, house prices have not fallen much. In some regions, they even increased, while a more significant drop was expected due to rise of interest rates.…