Central bank sees a sluggish outlook continuing – and BMO managing director says less focus on housing wouldn’t necessarily be a bad thing
The Bank of Canada doesn’t see much chance of a hotter national housing market in the near future, forecasting this week that housing will contribute essentially nothing to national economic growth in the next two years.
The central bank said in the latest Monetary Policy Report, released alongside its rate hike on Wednesday, that climbing borrowing costs will send housing-related expenses higher in 2027 and 2028, while material and equipment prices will also increase as home construction and maintenance costs rise.
That’s not to say housing and mortgage professionals will notice a sudden or sharp change, with the deep freeze that’s gripped the market over the past two years showing no sign of thawing.
Benjamin Reitzes (pictured top), managing director, Canadian rates and macro strategist at Bank of Montreal (BMO), told Canadian Mortgage Professional the central bank’s 25-basis-point increase on October 28 may have a slight negative impact on the market, but that there wasn’t much momentum to stall in the first place.
“What’s notable is that you already had mortgage rates notably higher right across the curve. So the only point where they were contained was on the variable side,” he said. “At least half the activity was coming in variable, according to the data.
“So [the hike] will provide a bit more of a dampener, I think, on the margin. Of course it makes a difference – but it’s not as if housing was booming. And so there probably is a limit to how much weaker it gets.”
Why the housing market is still slow
The main culprits for the still-sluggish housing market are well known at this stage: economic uncertainty triggered by the US-Canada trade war, and inflation concerns as a result of surging fuel costs.
That trade dispute has sparked fears of job losses and a big hit to the economy since the beginning of last year, while rising inflation was one of the main reasons the Bank of Canada raised rates on Wednesday and could hike again soon.
And while home prices have slid across many markets in 2025 and 2026, Reitzes suggested that the correction may still have a while to run.
“The reality for the housing market is that affordability is still stretched. There’s still room for prices to fall – the affordability side of things needs to improve,” he said. “I think at this point, the path of least resistance is probably still toward modestly lower prices for housing and continued softness on that front. And that’s what the Bank’s expecting.”
Affordability improved in almost every major Canadian market in September, according to ratehub.ca, but that picture could be complicated if rates continue rising in the coming months.
Population dynamics are also playing their part in the market’s slowdown. The federal government dramatically upped its immigration targets in the early years of this decade, boosting demand for housing and rental units.
Those targets have been pared back substantially, a trend that’s lowered clamour for condo rentals in major markets – most notably Toronto – and contributed to the wider housing market cooldown.
The market’s torpor has also fuelled calls among some executives for an end or revision to the foreign homebuyer ban that’s been in place since the beginning of 2023, although industry views on the matter have been mixed.
Why a less intense housing market could ultimately benefit Canada
Reitzes emphasized that a less intense focus on the housing market could be a net positive in the long run for the Canadian economy.
“Population growth is not particularly strong in Canada at the moment, and so the dynamics are challenging for housing – and that isn’t necessarily the worst thing,” he said. “Housing has… gotten too much attention over the past few decades, and it’s kind of shifting the focus toward business investment and toward driving productivity growth in Canada.
“As much as people love to focus on housing, sometimes it’s not always the best use of capital for the country. So it’s not the end of the world here that we’re going a different way.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
