The Bank of Canada has maintained the same interest rates since July 2023. Despite the expectation of another hold next week, there is a growing sentiment among economists and traders that the central bank might increase its trend-setting rate to combat persistent inflation.
Experts in mortgages and debt foresee significant repercussions on Canada’s struggling real estate market if rates are raised. Immediate impacts would include higher payments on variable-rate mortgages and increased rates for new fixed mortgages. The pool of potential buyers would shrink, shifting leverage from sellers to those who qualify for financing, potentially leading to a decrease in home prices.
Scott Terrio, the manager of consumer insolvency at Hoyes Michalos & Associates in Ontario, likened the effect of rising rates to throwing an anchor to a drowning person, emphasizing the potential magnitude of the impact.
Ben Rabidoux from Edge Realty Analytics in Ontario highlighted that current home sales across the country are at a 25-year low, attributing the weak buyer confidence to various economic uncertainties such as the Canada-U.S. trade war and the impact of artificial intelligence on job stability. He warned that home prices could see a gradual decline over the next few months if interest rates go up.
The Canadian Real Estate Association recently revised its 2026 home sales forecast downwards for the third consecutive quarter, citing a more hawkish stance from the Bank of Canada. Governor Tiff Macklem has indicated a possible need for rate hikes if energy prices remain high, mentioning the ongoing conflict in the Middle East as a factor affecting global energy markets.
Although opinions in a recent Bloomberg survey suggest a hold on rates, some institutions like the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their predictions towards a rate hike. Market data now indicates an 87% probability of a 25-basis point rate increase by the Bank of Canada next week.
Economists like 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.
Leah Zlatkin, a licensed mortgage broker, voiced agreement with the potential for a rate hike leading to a cycle of increases. She pointed out a recent price drop in the Greater Toronto Area as a signal that it could be a good time to enter the market, emphasizing that qualifying for a property now could provide stability even if rates rise in the future.
