With 2027 rate increases potentially on the horizon, more turbulence could be on the way for Canadian housing
Fears of an upsurge in Canadian inflation have soared in 2026, with the onset of the US-Iran war at the end of February spiking oil prices and raising the prospect of a spillover into other consumer costs.
In turn, that’s seen financial markets increasingly consider the possibility of interest rate hikes by the Bank of Canada in the months ahead, a development that would have big repercussions for mortgage rates and the housing market outlook.
While last week’s labour market data delivered a surprise to the tune of 75,000 new jobs added in July, economists still view a central bank rate hike in its next meeting – scheduled for the beginning of September – as unlikely.
Most bank economists, including TD’s Andrew Hencic and BMO’s Doug Porter, say the BoC will probably keep rates on hold for the rest of the year and leave their options open as uncertainty about the direction of the conflict in Iran continues.
For now, Porter and BMO say 2027 could also see no rate movement by the Bank – but if it does act, it’s likelier to be a hike. “Even this (normally dovish) space would allow that the risk for next year is now higher, not lower, rates,” Porter wrote last week.
The reemergence of speculation about rate hikes comes as unwelcome news for mortgage market watchers who had hoped the Bank’s next moves would be geared toward cuts rather than increases.
‘An additional negative force’
The sudden prospect of rate hikes injects fresh uncertainty into a housing market that’s still reeling from the shock of the tariff war launched on Canada and other trading partners early last year.
Joel Fox (pictured top), chief operating officer and co-founder of Toronto-based real estate technology firm Ownright, told Canadian Mortgage Professional rate increases by the central bank could weigh down the national market even further.
“If interest rates are adjusted upwards, we just have additional forces impacting the market,” he said. “That could change the trajectory of the market for the rest of the year – and it wasn’t overly optimistic in the first place.”
Events south of the border, from the trade conflict to the launch of the Iran war, have had an outsized impact on Canada’s economic and housing market outlook, with those factors showing no sign of easing.
Rate hikes, Fox said, would mark just another hit to the housing sector. “Nothing really has changed in terms of the catalyst that’s been impacting the market over the past year and a half,” he said. “And if we’re now on the other side of that – where there’s a real possibility that interest rates are going to hike back up – that’s just an additional negative force.”
Bank of Canada keeps its options open as Iran war rumbles on
For its part, the Bank of Canada has remained tight-lipped on the likely rate path ahead, although minutes from its last meeting reflected growing division among decisionmakers about the strength of the economy.
Meetings showed “a range of views” among Governing Council members about the economy’s resilience, the Bank revealed, with growing concern about the possibility of rising oil costs impacting prices elsewhere.
“The longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden,” the Bank said. Members emphasized they “would not let higher oil prices lead to persistent inflation.”
The fact that most economists see rates staying on hold for the rest of the year is at least a positive sign, but Fox also doesn’t predict any chance of Canadian consumer and homebuyer sentiment improving until news of a lasting ceasefire in Iran emerges.
There’s no sign of that happening yet, even with the six-month anniversary of the beginning of the war nearing at the end of August.
“For anything to move to the real, notable positives, you’d almost need both of those things to be true [rate holds and an Iran truce],” he said. “And it doesn’t seem overly likely at this point.”
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