Canada's real estate sector is teetering on the edge as whispers of an interest rate increase grow louder at the Bank of Canada, threatening to push an already fragile housing market into deeper distress.
While the central bank has held its policy rate steady at 2.25 per cent since October 2025, a growing chorus of economists and traders now expects Governor Tiff Macklem to reverse course and hike rates on October 28 to combat stubborn inflation pressures fuelled by elevated energy costs.
The timing couldn't be worse for Canadian homeowners and prospective buyers.
A Market Already on Life Support
Home sales across the country have collapsed to levels unseen in a quarter-century, according to real estate analysts. Ben Rabidoux of Edge Realty Analytics paints a stark picture: Canada's per capita home sales have retreated to 1990s levels—a deeply recessionary environment few remember with fondness.
"Confidence among buyers today is unbelievably weak across the country," Rabidoux said, citing mounting economic uncertainties ranging from Canada-U.S. trade tensions to concerns about artificial intelligence's impact on employment.
The Canadian Real Estate Association has downgraded its 2026 sales forecast for the third consecutive quarter, now projecting only 444,530 homes will sell by year-end—a 5.2 per cent decline from 2025.
What a Rate Hike Would Mean for Your Wallet
If the Bank of Canada moves forward with a rate increase, the consequences would ripple immediately through Canada's mortgage landscape:
Variable-rate mortgage payments would jump overnight. Fixed-rate mortgages offered to new buyers would climb higher, shrinking the pool of Canadians who can actually qualify for financing. Home prices, already softening, would likely grind lower over the coming months.
"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 Hoyes Michalos & Associates. "A hike would reverberate massively."
Rabidoux suggests a gradual decline in home prices over the next three to six months is "very plausible" should rates start climbing.
The Inflation Problem
Macklem has signalled the bank may need to raise borrowing costs if energy prices remain elevated. On Saturday, he noted there is "no resolution in sight for the conflict in the Middle East" that has roiled global energy markets for months, keeping inflation pressures alive.
While an eighth consecutive rate hold is still the most widely predicted outcome for next week's announcement, the shifting sentiment among market watchers suggests complacency could prove costly for Canadian homeowners already stretched thin by years of higher borrowing costs.
This story is based on reporting from CBC News, originally published by Jeff Lagerquist.