Central bank signals rates may stay high, pressuring housing recovery hopes
The Bank of Canada’s decision to keep its key interest rate unchanged this week is expected to influence activity in the country’s housing market, particularly for prospective buyers waiting for borrowing costs to decline.
Shaun Cathcart, senior economist at the Canadian Real Estate Association (CREA), said the central bank’s latest announcement suggests interest rates could remain elevated for a longer period due to continued inflation pressures. He pointed to survey data referenced in the Bank’s statement, showing that consumers expect prices to rise due to tariffs, while businesses also indicated plans to raise prices.
According to Cathcart, this inflation outlook suggests limited room for rate cuts in the near term. He said the Bank is signalling expectations for further inflationary pressures, reducing the likelihood of significant rate adjustments moving forward.
While mortgage rates have already fallen from previous highs, CREA’s economist noted to the Globe and Mail that economic uncertainty has weighed on buyer activity. Even with more favourable borrowing rates than last year, housing sales remain relatively low in most regions.
Cathcart said consumer sentiment could gradually improve in the coming months. Internal data from CREA shows that May could become the first month since November to see a month-over-month increase in national home sales. However, he cautioned that any market rebound would likely be limited in scale.
He added that most buyers are unlikely to return in large numbers unless interest rates fall by at least a full percentage point—a scenario not expected in 2025 under current forecasts. Without that level of change, affordability challenges are likely to persist for many households considering homeownership.
“It’s a huge climb back to normal,” Cathcart said.
With the Bank of Canada maintaining its current stance, the housing market is expected to see only gradual movement in the near term. Buyers may remain hesitant, and industry observers are closely watching inflation indicators for further clues on when rate adjustments might begin.
For lenders, developers, and other market participants, the central bank’s cautious approach means continued uncertainty in the short term. Housing activity will likely remain sensitive to economic data and rate expectations through the rest of the year.
