2026 BoC rate hike still unlikely despite possible inflation flareup, says BMO

The prospect of another oil‑driven inflation flareup has revived chatter that the Bank of Canada could be forced back into tightening in 2026.

However, BMO Economics’ Douglas Porter argued that, even in a darker global backdrop, a rate hike this year remains “a very long shot indeed” for a Canadian economy already straining under higher borrowing costs.

Canada’s policy rate sat at 2.25% heading into the spring, with core inflation edging closer to the 2% target even as geopolitical risks and US trade tensions clouded the outlook.

External analysts also highlighted that much of the recent price pressure stemmed from tariffs and energy rather than domestic overheating, and that growth has been modest despite headline resilience.

Oil shock revives stagflation fears

“To think that just one week ago, the biggest concern for markets was something as humdrum as whether AI was going to take all our jobs and ravage the economy in the years ahead. Those were the good old days,” Porter wrote in a recent note titled Life During Wartime.

“The conflict with Iran has abruptly changed the economic outlook, with crude oil prices vaulting more than 35% in the past week alone to above $90/barrel for WTI… The spike has rekindled inflation risks, reduced the odds of central bank rate cuts globally, and is now threatening the global growth outlook.”

“As much as the term ‘stagflation’ has been wildly over‑used in recent years, a true oil price shock would indeed increase the risks of stagflationary forces – higher inflation, weaker growth; not a market‑friendly combination,” he said.

Why BMO still sees a hike as “a very long shot”

Unlike the US Federal Reserve, where markets remain divided over the scale and timing of future cuts, there has been “little debate over the amount of potential rate cuts by the Bank of Canada – even prior to the spike in oil, the consensus was firmly that there would be no move on rates this year,” Porter said.

“If anything, the threat of higher inflation has rekindled chatter of a potential rate hike in 2026,” he added.

“We still view that as a very long shot indeed, with the economy struggling to grow, core inflation moving closer to the 2% target, and USMCA uncertainty still clouding the outlook.”

Trade talks under the Canada–US–Mexico Agreement (CUSMA) review framework has finally restarted after a four‑month pause, with minister Dominic LeBlanc travelling to Washington as Ottawa warned that annual reviews and deliberate uncertainty are now on the table.

“One optimistic view is that the Iran conflict makes a deal more likely… But given the choppy U.S.-Canada relations over the past 14 months, there are clearly many less favourable possibilities as well,” Porter said.

“We continue to err on the side of caution on the outlook for USMCA (i.e., prolonged uncertainty) in our Canadian economic forecasts.”

Mortgage market faces renewal grind, not another shock

For mortgage professionals, the key question is how long rates stay restrictive, not whether the BoC delivers a surprise hike next year.

Roughly 60–70% of Canadian mortgages are expected to renew by the end of 2026, with many borrowers still facing payment increases compared with ultra‑low pandemic‑era rates.

Brokers already cast 2026 as a “reset year”, shifting from rate predictions to managing affordability pressure, renewal shock and a growing reliance on alternative and private solutions as more files move out of the narrow prime box.

The “great renewal” shows more than two million mortgages set to renew between 2024 and 2026, a 57.7% year‑over‑year surge in Q1 2025 originations driven by renewals and refinances, and growing payment stress in higher‑priced provinces such as Ontario and British Columbia.

CMP

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Another month, another slump for Toronto’s condo market

On this day four years ago, the average price of a condo across the Greater Toronto Area (GTA) sat just below $800,000, having skyrocketed amid the buying frenzy of the COVID-19 pandemic.

It seemed the market was on an unending upward trajectory, with record-low interest rates helping fuel an enormous year-over-year increase in prices as investors rushed to snag a rental unit.

But now, new data from the Toronto Regional Real Estate Board (TRREB) shows the average price has tumbled to $626,650 – a dive of about 21.7% from its 2022 peak – as the stunning correction at play in the city’s condo market continues.

GTA condo sales last month slid to 1,088, a drop of more than 60% from the same time four years back, as investors and other buyers continued to desert the market in droves.

Other property types – detached, semi-detached, and townhouses – are also seeing activity and prices contract sharply as economic unease and affordability challenges take their toll.

Still, none have been as dramatic as the condo market’s woes, which aren’t expected to end anytime soon.

Despite some cause for optimism in certain pockets of the Toronto real estate market, mortgage broker-owner Mike Kazarian of Lenders’ Choice Mortgages doesn’t see green shoots in 2026 for the condo sector – even though it will eventually recover.

“A lot of builders have stopped construction so inventories are going to be lower, and where are we going to house people?” he told Canadian Mortgage Professional. “That’s going to be the problem in the next three, four years. So I think the condo market will turn around – but that’s going to take time.”

Builders, investors in the lurch as condo crunch continues

In February 2022 in Toronto, 784 condos were sold in a price range between $700,000 and $799,999. By last month, the number of condos sold in that range had slipped to just 88, with an ever-growing number of condos in the $300,000 to $499,999 window.

Plunging values are creating much-publicized problems for buyers who purchased preconstruction condos years ago, only to find that the property is worth much less than they agreed to pay.

If a lender isn’t willing to offer a so-called blanket appraisal, that can potentially leave buyers on the hook for huge amounts of money – up to hundreds of thousands of dollars in some cases – as they scramble to make up the difference between the sale price and what lenders are willing to fund.

“The most common solutions are: A, they’ve got to come up with cash,” Kazarian said. “If they can’t come up with the cash, which is not always easy… some people are just going to have to walk away and they’re going to get sued by the builder. And that’s really unfortunate.”

Others still are going back to the builder in an effort to negotiate a lower price, knowing that those companies also face challenges when a growing number of buyers in a building suddenly can’t qualify for a mortgage.

Toronto condos continue to weigh down overall national outlook

The sluggishness of Toronto’s condo market means the city continues to drive a wider slowdown in housing across the country, with other regional markets faring better.

Part of the reason for the sector’s recent malaise has been a jump in interest rates since 2022, spiking the cost of borrowing and – as rents continue falling – suddenly turning many investment properties into a cashflow-negative burden for owners.

A drop in the federal government’s immigration targets has also curbed rental demand and removed some buyers from the market.

“It’s ironic, because we had a housing shortage until the government decided to reduce the number of immigrants,” Dominion Lending Centres (DLC) chief economist Sherry Cooper told CMP in late February. “And the population growth has just plummeted, which is never good for housing either.

“So it’s a combination of many factors. And the one that gets the least attention and probably deserves the most attention is this sudden shift in population growth. Because much of what was built was purpose-built rental.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

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Builder slump deepens housing crisis

 Canada’s residential construction industry has been adding workers but losing ground on productivity, a new Statistics Canada study found, intensifying pressure on already stretched housing affordability.

The report showed labour productivity in residential building construction fell 37.3% between 2001 and 2023, even as the broader business sector posted gains.

Smaller firms with fewer than 20 employees accounted for most of that decline, while Ontario alone contributed roughly two thirds of the national drop in productivity.

“It is estimated that Canada requires a massive increase in housing starts to meet demand and improve affordability by 2035,” the study said, citing Canada Mortgage and Housing Corporation (CMHC).

“Labour productivity growth in Canada’s construction sector has been slow and has lagged compared with that of other business sectors over the last 20 years.”

Nationally, latest CMHC index showed homeownership affordability hit its weakest point since the 1990s in the second quarter of 2022 before conditions improved modestly.

CMHC’s data traced three distinct waves of erosion beginning in 2001, with the latest – from 2020 to 2023 – no longer driven only by Toronto and Vancouver but by fast‑tightening conditions in Ottawa, Montréal and Halifax as remote‑enabled households moved into those markets.

“Increasing the efficiency of construction is the long term key to improving housing affordability,” Aled ab Iorwerth, CMHC deputy chief economist and a co‑author of the report, said in a CTVNews.ca interview.

“It’s not going to be a quick process. It’s going to take years of consistent building of more housing.”

Small builders, big drag

StatCan defined small firms as those with fewer than 20 employees and found they provided 66.1% of jobs in 2023.

Firms with fewer than five employees alone accounted for 22.4 percentage points of the overall 37.3% productivity decline, while those with five to 19 workers added another 16.1 points.

ab Iorwerth, added that many small companies focused on single detached homes that were “relatively easy to build” and had changed little in a century.

“There hasn’t been a lot of innovation in building single detached housing, its built now the same way it was 100 years ago,” he said.

Ontario’s slump, B.C.’s exception

Ontario’s firms were responsible for 24.7 percentage points of the productivity decline, and it was the only province where productivity fell across all firm sizes.

British Columbia was the sole province that made a positive contribution – mainly because its share of construction jobs grew – even though individual firms there also struggled to keep productivity rising.

Broader warnings for mortgage professionals

The StatCan findings echo a previous CMHC research which found that post‑2019 productivity losses added an estimated $6 billion to $8 billion to construction costs and contributed up to one fifth of new home price increases.

"Doubling the pace of housing construction in Canada is achievable, but not without a significantly larger and modernized workforce, more private investment, less regulation, fewer delays, and lower development costs," ab Iorwerth said at the time.

He urged builders to “deploy the latest technologies … use materials in a better way” and invest in higher‑skilled workers, while pointing to countries such as Singapore and Japan that pushed industrialized building and robotics.

“I think what is happening in the industry is that demand for housing is increasing and that supply is just being met by hiring more and more workers,” he said.

His concern is that companies are “not improving their processes” and are instead “just buying more labour,” rather than turning to prefabrication, economies of scale and digital tools to lift output per worker.

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!

Variable mortgage interest rises, but fixed holds strong: Rates.ca

Canadian borrowers are showing renewed interest in variable-rate mortgages, though fixed-rate products continue to dominate the market as most households prioritize payment predictability amid ongoing economic uncertainty, according to new data from Rates.ca.

The findings, drawn from Rates.ca’s mortgage quoter, show a measurable shift in borrower behaviour between 2024 and 2025, with variable-rate interest climbing although not overtaking fixed-rate demand.

According to Victor Tran, mortgage and real estate expert at Rates.ca, the uptick in variable-rate inquiries followed a series of rate reductions by the Bank of Canada throughout 2025. The central bank reduced its policy rate by 75 basis points over the course of 2025, before holding the overnight rate at 2.25% in January 2026.

The Rates.ca data show variable-rate mortgage quotes generally ranged between roughly 11% and 18% of total quotes throughout 2024. In 2025, variable-rate quotes moved into the 20% range, peaking at nearly 30%. In January 2026, variable rates accounted for just over 26% of total quotes. Fixed-rate mortgages remained above 70% of total quotes across 2024, 2025, and into early 2026.

“We’re seeing more borrowers take a closer look at variable rates than we did a year ago,” Tran said. “As the Bank of Canada lowered rates through 2025, variable mortgages became more attractive and interest picked up. Even so, most households are still opting for fixed because it offers predictability in an environment where rate direction isn’t guaranteed.”

The trend at Rates.ca broadly aligns with data from other platforms. Ratehub.ca reported that 77% of all mortgage requests on its platform from January through December 2025 were for five-year fixed-rate mortgages.

Borrowers weigh stability

Tran described the pattern as one of cautious decision-making rather than a fundamental change in risk tolerance. He noted that some borrowers who have already experienced payment increases may approach variable products with greater caution, while others – particularly those with shorter timelines or plans to move or refinance – may view variable rates as a viable option.

“For households planning to stay in their mortgage longer term, fixed still offers predictability that many are reluctant to give up,” Tran said.

Fixed rates are expected to remain relatively stable, while variable rates may hold broadly steady through mid-2026 absent a major economic shift.

As of early 2026, variable mortgage rates are tracking lower than five-year fixed rates, giving borrowers a noticeable pricing advantage, though Tran’s data suggest most Canadians are not yet acting on that spread.

The findings come as a significant share of Canadian mortgage holders face renewal decisions. Roughly 60% of Canadian mortgages are set to renew in 2025 and 2026, putting mortgage risk assessment at the forefront for a large segment of borrowers.

Housing sector in holding pattern

By late 2025, Canada’s housing market had entered what industry analysts described as a prolonged “waiting game” as buyers and sellers reacted to a combination of slower sales and cautious expectations about future interest rates. According to a report from Royal Bank of Canada Economics, home resale activity stagnated across much of the country through the fall of 2025 after a modest rate reduction failed to energize transactions.

“Canadian homebuyers are playing the waiting game in a showdown with sellers,” the report observed, noting that resales had neither grown nor shrunk significantly since midsummer. In some markets, accumulating listings allowed buyers to exert leverage, prompting price adjustments as sellers weighed whether to reduce asking prices to generate interest. This dynamic contributed to a sense of market balance rather than a clear acceleration in activity, even as borrowing costs eased.

Data from the Canadian Real Estate Association indicate national home sales softened toward the end of 2025, while the MLS® Home Price Index recorded modest declines in some regions and stable pricing in others. Inventory levels remained elevated compared with recent years, reflecting slower turnover in the resale market.

Housing affordability metrics also improved in late 2025. National Bank of Canada’s housing affordability monitor shows the share of household income required to cover mortgage payments declined for eight consecutive quarters, reaching its lowest level in nearly four years by the fourth quarter of 2025. The improvement coincided with lower borrowing costs and gradual income growth.

Despite these changes, affordability conditions remain uneven across the country. In higher-cost markets, the proportion of income required for housing expenses continues to exceed long-term historical averages. Industry data note that price adjustments have been uneven by region, with some areas experiencing greater moderation than others.

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!

A make-or-break moment could be looming for Canada’s housing market this summer

The US Supreme Court’s decision to strike down a large portion of Donald Trump’s tariffs last week doesn’t seem likely to change the picture much for Canada when it comes to the ongoing trade war.

But that tariff dispute, which has proven hugely impactful on the national housing market and homebuyer confidence, could face a day of reckoning by July 1.

That’s the cutoff point for review of the Canada-US-Mexico Agreement (CUSMA), a wide-ranging trade deal struck between the three North American allies that’s protected many Canadian industries and exports from the tariff wave Trump launched last year.

The current US tariffs exempt exports covered by CUSMA, meaning Canada has been spared much deeper trade pain – even if the tariffs have battered other sectors like steel, aluminum and automobile manufacturing.

Economists have long flagged the enormous significance of the looming CUSMA review, whose outcome could shape the outlook for Canada’s housing market and wider economy for the remainder of the year.

Those negotiations, and the prospect of Trump suddenly walking away from the deal, make it far more noteworthy than last week’s Supreme Court decision, according to Servus Credit Union chief economist Charles St-Arnaud (pictured top).

“We have bigger concerns coming up this summer with the review of CUSMA,” he told Canadian Mortgage Professional when asked on the possible impact of Friday’s decision. “That will be more consequential in terms of what’s going to happen with tariffs.”

Exemptions have cushioned the blow of Trump’s trade war

Canada’s economy isn’t exactly booming, and certain industries have staggered under the weight of Trump’s tariff regime.

But its condition would be far worse, St-Arnaud pointed out, if it wasn’t for the wide-ranging CUSMA exemptions the Trump administration introduced last year.

“We’re doing OK – not great,” he said. “We need to put it in terms of context. If we compare to where we thought we would have been a year ago, we’re in much better shape. But it’s still not great. It seems like the economy is really at a standstill.

“In terms of growth, in terms of domestic demand, it’s still sluggish. We’re hoping for some improvement in 2026, but it will remain kind of a modest improvement in terms of economic activity this year.”

Hopes of a Canadian housing market recovery in 2025 were dashed when Trump announced his tariff plans, plunging the economy into uncertainty and keeping would-be homebuyers on the sidelines amid fears of job losses and an economic downturn.

If the notoriously trigger-happy Trump walks away from CUSMA in the months ahead, that could cause further chaos, opening the possibility of even wider-ranging tariffs with many industries no longer protected.

Still, it’s unclear for now how likely the president would be to turn his back on those trade negotiations instead of striking a deal.

The Fraser Institute’s Steven Globerman and Jock Finlayson argued this week that recent events could play a big part in constraining Trump and boosting Canada’s chances of a good deal on CUSMA.

“The SCOTUS ruling, coupled with a recent congressional vote to revoke Trump’s emergency tariffs on Canada and disapproval of Trump’s tariffs by a majority of Americans, may strengthen Canada’s hand in the CUSMA review process,” they wrote.

“To the extent that Trump acknowledges that judicial, political and public opinion are turning against his slapdash trade protectionism, he might be more willing to engage in constructive discussions with Canada (and Mexico).”

Good outcome could boost confidence among hopeful buyers

Dominion Lending Centres (DLC) chief economist Sherry Cooper said the result of the CUSMA review could make or break the year when it comes to Canada’s housing market, with plenty of buyers waiting for some better news to emerge on the economy before making their move.

A positive for mortgage market watchers: if those negotiations go well and the outlook brightens for the Canadian economy, an uptick in activity in the second half of the year could be ahead.

“It’s not as though consumer confidence hasn’t improved,” Cooper told CMP, “and interest rates have come down. Home prices are down almost 10%. So people like first-time buyers that have been on the sidelines for four years certainly feel pent-up demand.”

But that doesn’t mean the market will suddenly spring into life if there’s a positive outcome to the trade negotiations, Cooper added, particularly with Toronto’s condominium market showing no signs of recovery.

“Toronto and British Columbia were not only hardest-hit by the tariffs, but there’s also a glut of new condominium housing in Toronto,” she said, “and that’s just going to take time to work off.”

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!