With the Bank of Canada readying its first interest rate announcement of the year on Wednesday (January 28), few in the mortgage industry are expecting a cut to help jolt the housing market back into life.
It’s widely thought the central bank will keep its benchmark rate – which directly influences variable mortgage rates and home equity lines of credit (HELOCs) – unchanged, holding steady as it waits to see how the economy fares in the opening months of 2026.
Next BoC change ‘more likely to be a hike’
Inflation came in hotter in December than 12 months before, jumping to 2.4% and essentially nixing any faint hopes the Bank might be tempted to cut rates this month.
And some experts believe that while the central bank is likely to stay on pause for the foreseeable future, a hike appears more plausible than a cut as its next move.
Royal Bank of Canada (RBC) senior economist Claire Fan sees the Bank holding its policy rate steady at 2.25% throughout this year, with “the next change in interest rates… more likely to be a hike.”
That means homebuyers holding out for lower rates on the variable side this year aren’t set for significant relief – and fixed rates mightn’t see meaningful movement either. Five-year Government of Canada bond yields, which lead fixed rates, have slipped since December but are still hovering well above where they lay in late October.
The mortgage industry shouldn’t be counting on rate cuts to spur a housing market revival anytime soon, according to Ownright co-founder and chief operating officer Joel Fox (pictured top).
He told Canadian Mortgage Professional that the current rate environment and ongoing geopolitical unrest were likely to keep market activity muted as buyers grapple with economic uncertainty.
“We have pretty strong indications that rates aren’t going to drop much further in the near term and if anything, I think the worry is that we might start moving the other direction if things continue the way that they are in terms of the unpredictability of the world,” he said.
“And then I think you just layer on the kind of constant state of anxiety that we as Canadians are feeling right now and it’s going to be hard to want to make a move there.”
Latest Trump threats cast housing outlook into fresh doubt
At the weekend, US president Donald Trump ramped up tariff threats on Canada, vowing to put a 100% levy in place on Canadian imports across the border if Mark Carney struck a trade deal with China.
Bank of Canada governor Tiff Macklem seems likely to reference the ongoing trade turmoil in tomorrow’s statement accompanying the rate announcement, and it remains to be seen whether an aggressive US approach toward Canada this year will change the central bank’s approach to interest rates.
Still, the lingering threat of US tariffs and fears of big job losses as a result were two of the main reasons Canada’s housing market remained muted throughout 2025.
Fox said that uncertainty looks set to spill over into this year, although a certain cohort of buyers will probably remain active in the market: those who need, rather than want, to move.
While those Canadians will probably make less than they might have before on the sale of their home because of the cooler overall market, they should also face a better purchase environment, he highlighted.
“I think the group of people that’s going to be least impacted by this is those that are looking to sell and buy within the same market,” he said.
“As long as you’re looking to do both transactions within the same time horizon and in the same market, whatever you lose on the sale, you’ll hopefully gain on the buy so you can come out even there.”
And as always, there’s likely to be plenty of clamour to purchase among first-time homebuyers hoping to leave the rental market and get their foot on the housing ladder.
“I think first-time homebuyers might be the ones that are most likely to jump off the sidelines sooner,” he said, “just because there’s probably the anxiety about getting their foot in the door in the market and the desire to start building up equity.”
CMP
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