Canadian housing market 'on its knees' as odds of Bank of Canada rate hike rise
A rate hike in October would have significant impacts on Canada's battered real estate market, experts say
The Bank of Canada has not raised interest rates since July 2023.
asserted
Bank → rise → July
And while an eighth-consecutive hold is widely-predicted next week, a growing number of economists and traders are now expecting the central bank to hike its trend-setting rate to tamp down stubborn inflation.
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bank → predict → inflation
Mortgage and debt experts say higher rates would have significant impacts on Canada's sagging real estate market.
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rates → say → market
Payments on variable-rate mortgages would rise immediately, along with rates for new fixed mortgages.
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Payments → rise → mortgages
The pool of eligible buyers would shrink, shifting power from sellers to those who can qualify for the financing needed to make a purchase.
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who → shrink → purchase
Home prices could dip lower.
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prices → dip → ?
"The housing market is kind of on its knees right now, and rising rates is like tossing a drowning guy an anchor," said Scott Terrio, manager of consumer insolvency at Ontario-based Hoyes Michalos & Associates.
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Terrio → rise → Michalos
He says a hike "would reverberate massively."
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hike → say → ?
Could an interest rate hike see home prices fall?
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prices → see → ?
The volume of home sales nationwide is currently at a 25-year low, says Ben Rabidoux of Ontario-based Edge Realty Analytics.
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Rabidoux → say → Analytics
He describes confidence among buyers today as "unbelievably weak across the country," owing to a slew of economic uncertainties ranging from the Canada-U.S. trade war to the impact of AI on jobs.
"
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He → describe → jobs
The reality is that when we look at per capita home sales, we're already back to 1990s levels, which [was] a really terrible recessionary environment."
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which → look → levels
On home prices, Rabidoux believes "a gradual grind lower over the next three or six months is very plausible" if interest rates start rising.
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rates → believe → months
Last week, the Canadian Real Estate Association downgraded its forecast for 2026 home sales activity for a third straight quarter.
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Association → downgrade → quarter
The industry group referenced a "notably more hawkish tone from the Bank of Canada," as it called for 444,530 homes to be sold by year-end, a 5.2 per cent drop from 2025.
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homes → reference → 2025
The Bank of Canada's policy rate has stood still at 2.25 per cent since a quarter-point cut in October 2025.
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rate → stand → October
Governor Tiff Macklem has recently warned the bank may need to raise borrowing costs if energy prices remain elevated.
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prices → warn → costs
On Saturday, he said there is "no resolution in sight for the conflict in the Middle East" that has roiled global energy markets for the past several months.
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that → say → months
CREA revises down 2026 home sales forecast again as September transactions fall 7.7% over same month last year
Inflation rises to 3.1% in September, as fuel prices push higher: StatsCan
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prices → revise → September
On Monday, the latest inflation data from Statistics Canada put a spotlight on soaring energy costs.
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data → put → costs
The report showed rising fuel prices have yet to meaningfully spill into other sectors of the economy.
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prices → show → economy
However, the Bank of Canada's latest survey, also released on Monday, found businesses are bracing for higher prices.
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businesses → release → prices
The consensus in a recent Bloomberg survey still points to a hold, but so far this week, the Bank of Montreal, RBC Dominion Securities and Desjardins Group have flipped their predictions for Oct. 28 from a hold to a hike.
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Bank → point → hike
According to Bloomberg data, traders in the overnight swap market now put the odds of a 25-basis point rate hike from the Bank of Canada next week at 87 per cent, up from 70 per cent earlier this week.
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traders → accord → cent
Swap market data measures the gap between today's interest rate and the future rate traders are betting on.
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traders → measure → rate
Derek Holt, head of capital markets economics at Scotiabank, is among those calling for a rate hike.
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Holt → call → hike
"It's not a slam dunk call, but there is probably enough supporting evidence for a hike," he wrote in a research note on Monday.
Macquarie Group economist David Doyle agrees.
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Doyle → be → Monday
He predicts the Bank of Canada will raise its policy rate by 125 basis points by the end of 2027.
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Bank → predict → 2027
"Our baseline case remains for a rate hike at this month's meeting," he wrote in a note to clients on Monday.
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he → remain → Monday
"We continue to see a steady rate hike cycle ahead.
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We → continue → cycle
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Leah Zlatkin, a licensed mortgage broker and an expert commentator with LowestRates.ca, agrees.
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Zlatkin → cut → LowestRates.ca
"If there is a hike, I do think it's gonna be a cycle," Zlatkin said.
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Zlatkin → be → ?
She points to a recent price drop in the notoriously expensive Greater Toronto Area as a sign that now is a "good time to buy.
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She → point → sign
"There's a possibility [that] housing prices are going to continue falling, but the reality is, if you'll qualify for the property today, then you'll qualify again later on if rates rise."
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rates → be → property
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