The Bank of Canada has kept interest rates unchanged since July 2023. While it is widely expected that rates will remain steady next week for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank may raise its trend-setting rate to address persistent inflationary pressures.
Experts in mortgages and debt warn that an increase in rates could have significant implications for Canada’s struggling real estate market. Variable-rate mortgage payments would immediately rise, as would rates for new fixed mortgages. This could reduce the pool of eligible buyers, shifting bargaining power from sellers to those who can secure financing. Consequently, home prices may experience a decline.
Scott Terrio, manager of consumer insolvency at Hoyes Michalos & Associates in Ontario, likened the impact of rising rates on the housing market to throwing an anchor to a drowning person, emphasizing the potential widespread repercussions.
Ben Rabidoux of Edge Realty Analytics in Ontario highlighted that national home sales are currently at a 25-year low, citing weak buyer confidence due to various economic uncertainties, such as the Canada-U.S. trade tensions and the influence of artificial intelligence on employment. He expressed concerns that per capita home sales have regressed to 1990 levels, indicative of a challenging economic environment.
The Canadian Real Estate Association recently revised down its 2026 home sales forecast for the third consecutive quarter, attributing this adjustment to a more assertive stance from the Bank of Canada. The association now anticipates a 5.2% decline in home sales compared to the previous year.
Governor Tiff Macklem of the Bank of Canada has signaled a possible need for raising borrowing costs if energy prices remain high. He highlighted ongoing global energy market disruptions due to the unresolved conflict in the Middle East.
Despite a prevailing consensus for maintaining rates, some financial institutions, including Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their predictions from a hold to a rate hike for the upcoming meeting. Traders in the overnight swap market have also increased the odds of a 25-basis point rate hike to 87%, reflecting a growing expectation of monetary policy tightening.
Economists such as Derek Holt from Scotiabank and David Doyle from Macquarie Group anticipate a rate hike, citing supporting evidence for such a move. Doyle predicts a cumulative 125 basis points increase in the policy rate by the end of 2027.
Mortgage expert Leah Zlatkin from LowestRates.ca concurs with the possibility of a rate hike, suggesting that it could mark the beginning of a rate hike cycle. She pointed to a recent price decline in the Greater Toronto Area as a potential opportunity for buyers, emphasizing that qualifying for a property now might still be viable even if rates rise in the future.
