This decline resulted in a Rising average family income coupled with 52.9 percent increase in the mortgage borrow- decreasing interest rates resulted in a pro- ing power (maximum eligible mortgage size) of nounced increase in the ability of potential potential home buyers. [...] Like most goods, housing The link between interest rates, prices reflect the complex interaction of sup- borrowing, and home prices ply and demand and are driven by the innu- Before analyzing the link between interest rates merable motivations of buyers and sellers. [...] This calculation es- ing prices.3 timates the maximum amount of lending avail- able to a family earning the national average The effect of lower interest rates on income in 2000 at different interest rates.6 mortgage borrowing power Figure 1 shows both the prevailing interest rate7 To estimate how interest rates influence mort- for each year and the maximum amount of eli- gage borrowing power, we [...] Calgary 76.8% (25.4% in real terms) Toronto 35.2% (1.6% in real terms) How rising incomes amplify the effect of Montreal 45.5% (13.0% in real terms) lower interest rates Canada 53.0% (18.5% in real terms) The previous section examined the effect of interest rates on mortgage borrowing power Source: Statistics Canada, 2017b and 2017c. [...] The variation power by major metropolitan region between in the mortgage amounts is driven entirely by 2000 and 2014 based on both the change in av- the differences in average family income be- erage family income and the falling interest rate tween the four cities in 2000: $51,572 in Van- (from 7.0 percent to 3.0 percent).