Inflation fears and the trade dispute are shaking consumer confidence and sending bond yields – and interest rates – steadily higher
Climbing bond yields and geopolitical uncertainty are clouding the picture for Canada’s housing market, threatening to push a recovery even further down the line as potential buyers grapple with rising interest rates and doubts about the economy.
Global bond market confidence has wobbled in recent weeks as rising oil prices from the US-Iran war continue to put upward pressure on inflation, potentially ramping up chances of central bank rate hikes.
In Canada, that turmoil was part of the reason TD Economics slashed its forecast last week for national 2026 home sales as the outlook darkens further. The banking giant now sees sales across the country slipping by 5.3% this year, a much more dramatic drop than its earlier projection of a 1.8% slide.
Canada was “already not in a great position” even before the trade war escalated, Canada Mortgage and Housing Corporation (CMHC) deputy chief economist Aled ab Iorwerth (pictured top) told Canadian Mortgage Professional, with the latest developments offering even more cause for concern.
“There’s also the Ukraine war, which is still ongoing – and so we have a lot of challenges on the energy front, and that’s pushing up inflation and making interest rates more difficult to forecast,” he said.
“But it seems that the trade escalation of the last few weeks does make us think that our forecast was perhaps a bit too optimistic. Now, the tariffs from the US are concentrated… on a few products. So it’s not the whole swathe of Canadian exports. But still, that does raise concerns in eastern Canada and Ontario and Quebec.”
Could the BoC bring interest rates higher?
The Federal Reserve raised its own benchmark rate last month for the first time in three years, and market expectations of a Bank of Canada rate hike have surged in recent weeks – sending bond yields, and Canadian fixed mortgage rates, higher.
For ab Iorwerth, however, there’s no clear case yet for a series of rate increases by Canada’s central bank. “There’s a lot of demand for capital – by the government, by the AI industry, and so forth – and I think this is pushing up long-term interest rates,” he said. “But it’s also making life very difficult to forecast because we don’t know what will happen on the trade front.
“And I think it makes the life of the Bank of Canada very difficult: inflation not as bad as in the US, but it’s still maybe slightly above target. But I’m not sure this is the right moment to be raising interest rates in Canada with all of the uncertainty that we’re facing.”
Delinquencies, arrears remain on the radar amid trade woes
Mortgage delinquencies and arrears have been a huge talking point in the industry in 2025 and 2026, mainly because of the glut of mortgages renewing at higher rates compared with three or five years previously.
Could the fresh bout of trade chaos and political uncertainty spur a further uptick in delinquencies as rates move higher?
The outlook for delinquencies and arrears has been largely regional, with certain parts of the country faring worse than others. That’s likely to persist in the months ahead, according to ab Iorwerth, although he still doesn’t see a wider market meltdown in the cards anytime soon.
“We’re watching arrears and delinquencies very closely. They’re particularly acute in Toronto, less so in Vancouver,” ab Iorwerth said. “But it’s not really an issue in the rest of the country. They’re sort of edging up. But even in Toronto, to be fair, they’re within historical averages, pre-pandemic averages.
“It’s just that they’re going up quite rapidly and it’s a source of concern. Maybe I should extend it beyond Toronto to include southern Ontario as well – but then you have places like Alberta where the economy remains strong and arrears and delinquencies remain contained.”
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