up for five years ago. as we go forward, people will increasingly face higher interest rates when they renew, and we will learn more about how people are adjusting. it is clear that many highly indebted households will face a difficult adjustment as their mortgages reset and interest rates go up. still, these adjustments will be far less demanding than if there were a serious negative economic shock, especially if financial vulnerabilities were allowed to continue to grow unchecked. now, the fact that household spending is behaving roughly as expected gives us more confidence that we understand what is happening in the economy. but borrowers and lenders are continuing to adjust to rising interest rates and the new mortgage rules. so, we are closely watching a number of trends in mortgage markets. for example, the share of mortgages that originate outside federal jurisdiction, including from private lenders and credit unions, is rising. these borrowers are not subject to a formal interest rate stress test. we have seen a rise in the share of mortgages issued by private lenders in the toronto area, although we do not have this type of data for cities outside of ontario. we have also seen a greater share of highly indebted borrowers taking out variable - rate mortgages. in doing so, they are lowering their debt - service burdens because, usually, the interest rate on a variable - rate mortgage is lower than on a fixed - rate mortgage. this frees up money for spending or saving in the short term, but exposes the borrowers to unexpected increases in interest rates down the road. that said, the stress test in place gives us confidence that these borrowers can manage significantly higher payments, if need be. in summary, while the quality of new lending has improved, the stock of risky mortgages remains high. over time, those mortgages should become less risky as they are slowly paid down. still, this vulnerability will persist for many years. closely related to the buildup of household debt are developments in housing markets. everybody is talking about this issue — which is no surprise when you see that house prices in the toronto area are close to 40 per cent higher than they were three years ago. in the vancouver area, the increase has been even larger — about 50 per cent. outside of those two areas, the average home price has increased just 5 per cent over the same three years. to be clear, fundamental factors have pushed up house prices in toronto and vancouver. strong

especially in the united states, should help lift the confidence of canada ’ s exporters. this is critical for canadian firms to boost their investment to expand their productive capacity. the sequence we can anticipate is the following : foreign demand will build ; our exports will strengthen further ; confidence will improve ; existing companies will expand ; companies will invest to increase capacity ; and new ones will be created. this sequence may already be underway. conclusion to conclude : in monetary policy, actions are critically important. the bank is absolutely committed, as i mentioned earlier, to keeping inflation predictable, stable and on target so firms can make longer - term decisions in an environment of confidence. but words, too, matter a great deal. by explaining the cross - currents at work in our economy, our projections for what ’ s ahead, and our monetary policy response, we can help to heal business confidence. and in order to expand our understanding of what ’ s happening in the real economy, we listen to businesses, to labour groups and to industry associations. beneath our economic and financial statistics and analysis are real people, making real decisions. those decisions are hard to make at any time, but when uncertainty is high and confidence low, they can be even more difficult. i am optimistic that the signs are there that the process is under way. right now, what we need most is stability and patience. bis central bankers ’ speeches to help nurture confidence, an active engagement with canadians must remain a cornerstone of the policy of the bank of canada. so thank you for being here today. i ’ m keen to hear your views, and i would be pleased to take your questions. bis central bankers ’ speeches