. partly as a consequence, the average selling price of a home in vancouver is now nearly 11 times the average vancouver family ’ s household income, a multiple similar to those seen in hong kong and sydney – cities that have also become part of a more globalized real estate market. such valuations are extreme in both canada and globally ( chart 16 ). given such developments, one cannot totally discount the possibility that some pockets of the canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand. the risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear – greed among speculators and investors – and fear among households that getting a foot on the property ladder is a now - or - never proposition. policy implications the bank manages policy for the economy as a whole, rather than any specific region or sector. in this context, what does the bank of canada expect for housing? in a word : moderation. in the bank ’ s view, canadian housing market developments in recent years have largely reflected the evolution of supply and demand. while supply of new homes should remain relatively flexible, many of the supportive demand forces are now increasingly played out. for example, while measures of housing affordability remain favourable, this is largely because interest rates are unusually low. rates will not remain at their current levels forever. the impact of eventual increases is likely to be greater than in previous cycles, given the higher stock of debt owed by canadian households. at a 4 per cent real mortgage interest rate – equivalent to the average rate since 1995 – affordability falls to its worst level in 16 years ( chart 17 ). 10 as i have observed, some markets are already severely unaffordable even at current rates. since 2008, the federal government has taken a series of prudent and timely measures to tighten mortgage insurance requirements in order to support the long - term stability of the canadian housing market. these will reduce the possibility that prices are further driven up simply through higher leverage. the bank has been expecting moderation in the housing sector as part of a broader rebalancing of demand in canada as the expansion progresses. overall economic growth is expected to rely less on household and government spending, and more on business investment and net exports. household expenditures are expected to converge toward their historic share of overall demand in canada ( chart 18 ), with expenditures growing more in the affordability index represents the proportion of the average personal disp

down three - quarters from their peak and prices have fallen by one - third. there have been over nine million foreclosures initiated since the cycle turned, and almost one in four mortgages is now in a negative equity position. while some details differ, most notably in the scale of defaults, recent trends have been similar in the united kingdom, spain and ireland, where housing markets remain acutely challenged. this finding is also consistent with reduced - form evidence of a correlation between consumer spending and housing wealth. see l. pichette, “ are wealth effects important for canada? ” bank of canada review ( spring 2004 ) : 29 – 35. research conducted at the bank of canada and elsewhere suggests that the financial - accelerator effect is economically significant. see m. iacoviello, “ house prices, borrowing constraints and monetary policy in the business cycle ” the american economic review 95, no. 3 ( 2005 ) : 739 – 64. see also : m. b. roi and r. mendes, “ house prices, residential mortgage credit and monetary policy, ” bank of canada, december 2004 ; and j. campbell and j. f. cocco, “ how do house prices affect consumption? evidence from micro data, ” ( harvard institute of economic research working papers no. 2045, 2004 bis central bankers ’ speeches elsewhere, however, the global financial crisis proved to be only a brief setback, with the growth of house prices resuming, or even exceeding, its former pace. 3 canada falls into this latter group. nationally, our house prices have risen 31 per cent from their trough in early 2009, to stand 13 per cent above their pre - crisis peak ( chart 3 ). 4 here in vancouver, the recovery has been even stronger, with prices up 55 per cent from their trough to a level 29 per cent above the prior peak. the rebound in housing market transactions and new construction, both locally and nationally, has been similarly robust. the performance of canadian housing during the recent cycle has been unusual. for example, it took nearly 12 years for real residential investment to regain its level on the eve of the 1990s recession ; this time it took only a year and a half ( chart 4 ). this rapid recovery importantly reflects the evolution of monetary policy during the recent recession. in response to the sharp, synchronous global recession, the bank lowered its policy rate rapidly to its lowest possible level, doubled our balance sheet, and provided exceptional guidance on the