Bank of Canada maintains policy rate at 2.25% amid economic uncertainty
Real estate professionals are watching closely as the Bank of Canada holds its policy interest rate at 2.25%, a move that could provide some predictability in borrowing costs while the economy navigates slower growth and trade uncertainties.
The Bank noted that its current approach reflects “an economy where uncertainty is heightened, and we are monitoring risks closely.”
For property investors, stable interest rates come at a time when new‑condo sales in major Canadian cities have slowed. Toronto has seen a marked decline from 2021 and 2022 highs, and Vancouver has experienced a similar trend. Inventories of unsold units have risen in both markets, while developers have scaled back or paused projects due to high financing costs and reduced pre-construction activity.
Phil Soper, president and CEO of Royal LePage, said the rate decision restores borrowing costs to a more typical range:
“Rates are returning to a neutral level, neither stimulating nor hindering economic activity. There may be modest shifts in either direction depending on economic developments, but the most likely outcome is a period of relative stability,” Soper said.
He added that steady borrowing costs are especially important for households facing mortgage renewals, as it “gives greater certainty around financing and allows decisions to be based on housing needs and affordability rather than attempting to time rate changes.”
CoStar market analyst Benjamin Haythornthwaite said the Bank is balancing two key considerations:
“Inflation pressures remain above target levels, so cuts aren’t justified, while overall financial conditions are restrictive enough that further increases are unnecessary.”
Haythornthwaite also noted that the Bank will respond only to significant, data-supported changes in inflation or economic slack, and maintaining the current rate keeps policy flexible as new data emerges.
Modest growth projected
The Bank projects moderate economic growth ahead, as slower population gains and more protectionist U.S. trade policies temper expansion. Consumer spending is expected to remain steady, while business investment may gradually strengthen, supported in part by fiscal measures.
Economic growth is forecast at 1.1% in 2026 and 1.5% in 2027, consistent with prior projections. The review of the Canada‑United States‑Mexico Agreement is cited as a key source of uncertainty.
Inflation is expected to remain near the 2% target, with trade-related costs offset by excess supply. Inflation measured 2.1% in 2025, with underlying trends continuing to moderate.
Mark Fieder, principal and president at Avison Young Canada, described the rate decision as expected, saying the Bank is likely to maintain the overnight rate through much of 2026. He added that stability in the five-year Government of Canada bond could help lenders set fixed mortgage rates with more confidence.
Fred Cassano, tax partner and national leader of PwC’s real estate practice, said the current environment should benefit commercial real estate, particularly high-end office and industrial sectors, which are expected to perform well.
Monitoring economic risks
Daniel Foch, chief real estate officer at Valery.ca, noted that Canada’s trade relationship with the United States remains a key factor and emphasized the need for more economic data.
“Many Canadians feel we are in a recession; it will take time for enough data to show whether rates need to decrease,” Foch said.
Dominic St‑Pierre, executive vice president at Royal LePage, added that interest rates may have reached their lowest point.
The Bank’s decision comes amid increasing pressure to expand housing supply. Federal estimates suggest Canada needs between 3.2 million and 5 million additional homes over the next decade.
Large redevelopment projects in Montreal, Toronto, and Vancouver have been slowed by consultations, rezoning, and planning delays. Rising vacancy rates in 2025 have also made developers more cautious about new projects.
Higher construction costs, municipal fees, and shifting demand patterns have constrained activity, despite calls for increased housing. National housing starts fell from over 280,000 units in June to roughly 230,000 by October, below the pace required to meet long-term housing needs.
Source: CoStar News
