What Iran turmoil and the latest What Iran turmoil and the latest BoC decision mean for Canada’s housing market decision mean for Canada’s housing market

Canada’s housing market hadn’t exactly been blazing a trail in the early weeks of 2026, but the eruption of conflict in the Middle East since the end of February only looks likely to keep activity muted.

That’s because the market is being hit with a “double whammy,” according to Bank of Montreal (BMO) chief economist Doug Porter (pictured top): potential price squeezes at the pump and a likely runup in interest rates as five-year Government of Canada yields climb.

“It’s not good. On the one side, there’s the hit to confidence because of the uncertainty for the outlook and the very real hit to people’s pocketbooks from higher gasoline prices,” he told Canadian Mortgage Professional.

“At the same time, we’ve had this backup in long-term bond yields, which is threatening to push up longer-term mortgage rates. It’s tough for the housing market on both fronts.”

Porter was speaking shortly after the central bank revealed its decision to hold its policy rate steady in March, keeping that trendsetting interest rate at 2.25% amid concern about a possible inflation flareup from the war.

While financial markets see the central bank potentially hiking in the months ahead, Porter views cuts as the better option for the Bank – even if he says a prolonged rate hold between now and the end of the year is likelier.

A rate cut? ‘It doesn’t seem like they have a lot of appetite for it’

If the economy continues to weaken and Bank decisionmakers pivot towards a cut, could reduced rates provide a shot in the arm to the housing outlook?

In previous tough economic situations such as the 2007-08 global financial crisis and the COVID-19 pandemic, significant Bank of Canada rate cuts eventually stabilized and improved housing market activity, Porter pointed out.

But mortgage professionals and shoppers shouldn’t count on big downward moves by the Bank in the coming months.

“I still think every basis point matters for the housing market, whatever the economic backdrop is,” Porter said. “Having said all this, I think the chances of the Bank cutting are pretty low.

“It doesn’t seem like they have a lot of appetite for it, and the market is leaning very heavily against that.”

Aside from concerns around the economic impact of the war in Iran, a number of other factors are keeping homebuyers on the sidelines – not least growing signs of a weaker than anticipated economy and continuing concerns over the trade outlook as review of the US-Mexico-Canada Agreement (USMCA) looms.

The economy has unexpectedly shed tens of thousands of jobs, Statistics Canada revealed last week, as the unemployment rate also ticked higher.

Meanwhile, the North American trade review – which will arrive by the summer against the backdrop of continuing trade turmoil between the US and Canada – has been flagged as a potential gamechanger for the housing outlook.

A sliver of good news arrived on Monday with the announcement that the annual consumer price index (CPI) slid to 1.8% in February, a bigger fall than most economists had expected, although it remains to be seen how oil price fluctuations and geopolitical tensions impact that gauge looking ahead.

Interest rates likely to hold steady – or increase – in 2026

For now, the Bank of Canada and its governor Tiff Macklem struck a measured tone on both the inflation outlook and labour market in their remarks after Wednesday’s rate decision.

“The economy was weaker than they expected going into the conflict, and inflation was, if anything, slightly better than expected,” Porter said. “They didn’t really say that, but I think it was.”

Other top economists have echoed Porter’s view that the policy rate will likely remain on hold for the rest of 2026, even though financial markets are leaning more strongly towards a rate hike.

“Amid a fluid and constantly evolving situation, we expect the BoC to remain prudent, maintaining the overnight rate at 2.25% while awaiting additional clarity,” Royal Bank of Canada (RBC) senior economist Claire Fan wrote after the decision.

And Oxford Economics’ senior Canada economist Michael Davenport sees the central bank holding steady. “The Bank has been clear in the past that it doesn’t think monetary policy can effectively deal with adverse supply shocks,” he said.

“With the economy still in excess supply and signs of a deteriorating labour market, we think the BoC will likely wait out the storm and hold the overnight interest rate steady in slightly stimulative territory at 2.25% for all of 2026.”

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Bank of Canada reveals much-awaited rate decision as geopolitical chaos continues

The Bank of Canada has left interest rates unchanged in its second rate decision of the year, holding steady as it assesses the impact of geopolitical tensions on the economic outlook.

The central bank said on Wednesday morning it was keeping the policy rate at 2.25%, extending a pause that began in December of last year.

That move comes as no surprise to financial markets even despite a surprisingly poor jobs report last week and a drop in the annual rate of inflation to 1.8% on Monday.

The US-Iran war, which began at the end of February, has thrown the central bank a new curveball as it weighs up its approach for the rest of 2026.

A sluggish economy and falling inflation would normally strengthen the case for rate cuts, but observers expected the Bank to hold steady this month because of the risk of an inflationary flareup amid volatile oil prices caused by the Middle East conflict.

Speculation has even grown in recent weeks that the central bank could move sharply into rate-hiking mode in the months ahead if inflation starts to gather pace – but for now that looks a distant prospect.

While today’s decision went largely as expected, much attention will now turn to the next remarks by Bank of Canada governor Tiff Macklem for clues on how decisionmakers are viewing the outlook for the national economy.

Today’s Canadian central bank announcement arrives on the same day as the US Federal Reserve’s second decision of the year, which is also expected to see a rate hold. That announcement is set for 2:00 p.m. ET.

For the Canadian housing market, today’s announcement likely signals little change. Variable mortgage rates and home equity lines of credit (HELOCs) will hold steady, while five-year Government of Canada yields – which lead fixed mortgage rates – have wobbled in recent days as oil prices whipsawed.

Yesterday, the Canadian Real Estate Association (CREA) revealed home prices and sales slipped again last month as the deep freeze gripping the national housing market continued.

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Canada inflation cools as Iran war clouds next BoC move

Canada’s inflation downshift in February landed at exactly the moment policymakers least wanted a surprise.

Annual CPI eased to 1.8%, undercutting economist expectations of 1.9% and moving below the Bank of Canada’s 2% target just as the Iran war pushed global oil prices sharply higher.

The data, shaped by base‑year effects from last year’s GST/HST holiday, effectively bought the Bank time at its next decision, even as the Middle East conflict threatened to drive energy costs – and headline inflation – back up in the months ahead.

Tame core gave BoC room to wait

Economists stressed that the softness in underlying inflation, rather than the headline print alone, matters most for Wednesday’s rate call.

Core measures CPI‑median and CPI‑trim both slipped to 2.3%, while CPI excluding food and energy edged down to 2.0%.

“The tame report will be welcomed by policymakers ahead of the energy price shock, as it shows that labour market slack is keeping a lid on core prices, with the issue for the BoC being how long the oil price shock lasts for and its magnitude,“ CIBC economist Katherine Judge wrote.

Claire Fan, senior economist at RBC, said, "At this week’s meeting, we expect the BoC to recognize growing external uncertainty but continue to hold the overnight rate at its current, borderline accommodative level of 2.25%."

BMO chief economist Douglas Porter wrote that “the Bank should be considering cutting rates, not raising them, in this economic backdrop.“

He added that “with most measures of core inflation close to the Bank's two per cent target, policymakers can more readily look through the oil-driven spike that is surely coming to headline inflation in the next few months,” pointing to weak recent jobs data and uncertainty around the Canada–U.S.–Mexico Agreement.

Desjardins economist Royce Mendes said the “weak” inflation print would allow the central bank to “leave rates unchanged until well into 2027.” 

The C.D. Howe Institute’s Monetary Policy Council urged the Bank to keep its overnight rate at 2.25% for the next 12 months, underscoring how fragile the outlook remains for growth, inflation and housing – and how little rate relief mortgage borrowers are likely to see in the near term.

Oil shock from Iran war looms over benign print

The Iran war and effective closure of the Strait of Hormuz has pushed Brent and US crude back toward or above US$90–$100 per barrel, with analysts warning of renewed global inflation pressure as higher fuel and shipping costs worked through supply chains.

Those dynamics are especially sensitive for Canada. The Bank recently reaffirmed its 2.25% policy rate, signalling a “steady‑as‑she‑goes” stance as inflation hovered near target. A sustained oil spike could force policymakers to weigh imported energy inflation against an already muted housing cycle.

TD Economics struck a similar tone. “Canada's inflation cooled in February, but that is backward looking now that prices at the pump have skyrocketed in the wake of the U.S./Israeli war with Iran,” Leslie Preston, managing director and senior economist said.

“We expect higher energy costs will lift headline inflation close to 3% in the months ahead, but the effect on the Bank of Canada's core measures should be more modest... The Bank of Canada's interest rate decision is coming up on Wednesday, and the Bank is universally expected to remain on pause.”

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Housing starts edge up, but deeper strains unsettle builders

Canadian housing starts posted a modest rebound in February, but economists and industry data pointed to a market still losing momentum beneath the surface.

The latest figures suggest builders are working through earlier project decisions while facing weaker demand, higher costs and a darker macro outlook.

Canada Mortgage and Housing Corporation (CMHC) reported that the seasonally adjusted annual rate of housing starts rose 4.5% month over month to 250,900 units in February. That's up from a revised 240,148 in January.

The six‑month trend – a moving average used to smooth volatility – inched up just 0.4% to 256,005 units, essentially flat.

Actual starts in centres with populations of 10,000 or more were up 10% year over year, with 15,886 units in February and a 5% gain year‑to‑date.

“In February, the six‑month trend in housing starts was essentially flat, indicating that the trend in new construction activity remains relatively steady despite ongoing monthly volatility,” said Kevin Hughes, CMHC’s deputy chief economist.

“Looking ahead, we expect heightened levels of business uncertainty and construction costs to weigh on the rate and trend of housing starts in the near‑to‑medium term.”

Trend stayed strong but momentum cooled

Economists underlined that February’s gain followed a sharp pullback. “The bounce‑back was tepid. So far in the first quarter, starts are down about 4% compared to their Q4 level, boosting the risk that starts act as a drag on residential investment in Q1 GDP growth,” Rishi Sondhi, economist at TD Economics, said.

Sondhi said the increase has been concentrated in the multi‑family sector, with urban multi‑family starts up 8% month over month to 192,300 units, while urban single‑detached starts fell 8% to 38,200 units.

He said the broader trend in starts have “generally [been] cooling since September of last year” and would likely keep easing amid “weak population growth, high costs, elevated levels of unsold inventories, and very weak pre‑sales activity in key markets like the GTA.”

While February’s numbers kept construction running at a historically solid level, leading indicators pointed in the opposite direction.

CMHC defined a housing start as the point when the footing of a foundation was poured. According to CIBC Capital Markets, that definition meant the data reflected project decisions made 12 to 18 months earlier. As a result, housing starts were a lagging indicator of overall market health.

Regional picture remained sharply divided

CMHC data showed an uneven landscape. Among Canada’s three largest centres, Montreal posted an 18% year‑over‑year increase in actual starts in February, and Vancouver recorded a 60% jump. Both were driven by stronger multi‑unit and single‑detached activity.

Toronto, by contrast, saw a 28% decline as both segments pulled back. Rural starts were estimated at an annualized 20,400 units.

TD Economics said February’s gains were led by Quebec and the Prairie provinces, with notable strength in Manitoba and Saskatchewan.

Starts in British Columbia dropped and remained flat at a low level in Ontario, reinforcing concerns raised in earlier TD work that the recovery in homebuilding and sales would be “gradual” and constrained by “elevated economic uncertainty, a subdued job market and a leveling off in interest rates.”

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BC home sales skid again

British Columbia’s housing market stayed in a deep trough in February, leaving mortgage professionals grappling with thinner pipelines even as borrowing conditions eased from the peak‑rate era.

The British Columbia Real Estate Association (BCREA) reported 4,516 residential sales through MLS systems in February 2026. That's down 9.7% from a year earlier and roughly one‑third below the 10‑year February average of 6,532 transactions.

Average prices also slipped, with the provincial MLS figure falling 2.9% year over year to $932,243.

Regionally, weakness had few exceptions. Greater Vancouver posted 1,648 sales, down 8.8% on the year, while Fraser Valley transactions fell 7.6% to 785.

Chilliwack and Kootenay saw sharper slowdowns, with sales drops of 31% and 29.4% respectively.

Only a handful of boards – notably Victoria and BC Northern – recorded price gains, even there alongside double‑digit declines in unit sales.

“Housing market activity continues to struggle, with sales declining from every region in the province compared to the same time last year,” BCREA chief economist Brendon Ogmundson said.

“We hope that improved affordability conditions in most regions and stable rates will motivate prospective demand to enter the market and drive stronger sales activity over the rest of the year.”

Year to date, residential dollar volume across BC was down 17.8% to $7.3 billion, with unit sales 15.8% lower at 7,832 and the average price 2.4% below a year earlier, BCREA said.

The latest figures arrived just months after BCREA’s third‑quarter forecast painted a brighter picture for 2026.

At the time, Ogmundson said “trade‑related uncertainty upended hopes for a more normal market through the first half of 2025,” but projected MLS sales would increase by 10.7% to 80,600 units in 2026 as activity returned toward long‑run norms. 

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