What the latest Bank of Canada decision means for the mortgage market

Attention immediately turned to the Bank of Canada’s plans for 2026 after the central bank revealed its final rate decision of the year on Wednesday, leaving rates unchanged in a move that surprised no-one.

The Bank’s indication that it views its current policy rate “at about the right level” to keep inflation under control and help the economy navigate its current challenges suggested that it isn’t about to start cutting rates again anytime soon.

But a surprising development in financial markets last week saw traders ramp up expectations of a potential rate hike by the central bank in 2026, responding to news of an unexpectedly resilient labour market and a slight dip in the national unemployment rate.

With Canada’s national housing sector still showing no signs of a sharp recovery – even despite the solid performance of some regional markets – a rate jump would mark unwelcome news for homebuyers and mortgage professionals hoping for lower borrowing costs to spur activity.

Still, there’s some good news for housing and mortgage market watchers: odds of a 2026 hike may have risen in recent weeks, but it remains a distant prospect for now, according to Bank of Montreal (BMO) chief economist Doug Porter.

He told Canadian Mortgage Professional the central bank still seemed more likely to cut than raise rates in the coming 12 months – although keeping rates unchanged in 2026 remains its most probable course of action.

Rate cuts are “possible, but unlikely,” Porter said, with much depending on how the economic landscape evolves next year. Unsurprisingly, he views the US-Canada relationship as one of the single biggest factors set to determine the BoC’s rate policy in 2026, with cuts potentially still in play if the economy takes a steep downward turn as a result of a US tariff escalation.

Rates lower than a year before, but unlikely to plunge again

 The move means that the Bank of Canada’s policy rate ends the year a full percentage point lower than where it began 2025, sitting at 2.25%. That signals a brightening outlook for variable-rate mortgage holders and HELOC (home equity line of credit) borrowers, even though fixed-rate products are still overwhelmingly favoured by borrowers in the current market – whether shorter-term or five-year options.

Will it convince many buyers off the sidelines? That remains to be seen. Real estate giants including Royal LePage and REMAX Canada have predicted a shift towards a more balanced market in 2026 as demand inches upward, biting into inventory.

Porter said the news that the Bank is potentially done cutting rates could convince some would-be buyers to make their move – and rates are much lower than where they sat until mid-2024.

Royal Bank of Canada (RBC) also says the central bank is likely done on rate cuts, but believes its next move is more likely to be a hike than a cut.

Housing market doesn't seem set to roar in the short term

Macklem’s press conference also contained some intriguing takeaways for mortgage professionals – not least his assessment of the housing market, which highlighted how the outlook differs from one Canadian region to the next and suggested a correction could continue in pricier markets.

Even a cut would have been unlikely to spur an immediate upswing in housing market activity. “This rate hold comes as the housing market enters what is traditionally one of the slowest times of the year,” Victor Tran, a mortgage and real estate expert with Rates.ca, pointed out.

“The hold provides some stability, but it’s not likely to spur a significant increase in sales activity during the holiday season.”

Porter said a steady central bank rate throughout 2026 could provide some stability to the market and a degree of certainty for buyers that rates aren’t likely to see big spikes up or down.

Oxford Economics, too, sees a prolonged hold as the likeliest path ahead. “We don’t anticipate the start of a new monetary tightening cycle anytime soon,” the company’s senior economist Michael Davenport wrote.

Source CMP
By Fergal McAlinden