ECON2009 Demand Theory

2. Demand Theory (5 points) In the face of soaring housing prices the major banks in Canada have been increasing the mortgage rate to contain the rise in housing prices. Following is an excerpt from an article analysing the U.S housing market published in CNBC on January 19,2018 \"Rising mortgage rates will make the market more competitive ...... Potential sellers will not want to lose the record-low rates they locked in after the recession, so they will stay put. Potential buyers will want to move in faster before rates rise even more and price them out. Homebuilders have been increasing production slowly ...... \" a. (2.5 points) Taking insight from the above statement using a demand- supply diagram show how increasing mortgage rate affects the price of housing in the Canadian market. b. (2.5 points) Again rising interest rates and land prices makes it harder for developer companies to construct new rental units at a faster rate. Using a demand - supply diagram show how the above event combined with this slow growth in rentals can affect the rental housing market in Canada