Bank of Canada Analysis: Home Buyers, Don’t Wait In Vain

Today’s Bank of Canada rate hold felt inevitable. Inflation’s relatively stable, employment hasn’t cratered and the Bank previously stated that a 2.25% overnight rate is “about the right level” to keep the economy upright as it’s buffeted by a torrent of hot air from south of the border.

The Bank’s commitment to stasis might be a sign of what’s to come for Canada’s mortgage rate-dependent housing market this year — and an early warning that waiting for rates to drop might not be an optimal home buying strategy in 2026.

Current rates aren’t cutting it

The Bank of Canada is expected to hold the overnight rate at its current level for much of the year, possibly even into 2027. If this scenario plays out, variable mortgage rates would remain stuck at their current levels until this time next year.

That’s not necessarily a bad thing. Historically, variable rates around 3.4% would be considered a decent deal. But decent doesn’t seem to be doing it for home buyers today.

Variables dropped to their current levels after consecutive BoC rate cuts in September and October. Rather than being jolted to action by the increased buying power, home buyers mostly shrugged it off. Home sales dipped slightly in November before experiencing a sharper decline in December.

Of course, there’s a little more at play than current rates where variable mortgages are concerned.

After the Bank of Canada’s last rate-hiking cycle, which dropped a hammer on the finances of variable-rate mortgagors post-pandemic, the risks associated with a variable rate may loom larger in borrowers’ minds than the benefits — especially if the Bank of Canada’s next move could be a rate hike.

The remaining option is a fixed rate. As is usually the case, however, the stability of a fixed-rate mortgage comes with a higher price. The lowest fixed rates today are around 3.7%, but most banks are charging well over 4% for three- and five-year terms.

In terms of affordability, the difference between a 3.4% variable and a 4.25% fixed isn’t enormous. (You’d be able to buy about $30,000 to $40,000 more house with the variable, assuming a down payment and annual salary of $100,000.) But the additional $200 dollars a month in mortgage payments, not to mention the stress test, could be a deal breaker for some prospective buyers.

Unfortunately, fixed rates aren’t expected to shift to a notable degree this year.

BMO senior economist Robert Kavcic estimates five-year fixed rates will stay north of 4% in 2026, but could be pushed even higher if global financial markets put upward pressure on government bond yields.

If neither variable nor fixed mortgage rates have been low enough to stimulate home buying over the past two months, it’s hard to imagine the same set of circumstances generating different results going forward.

What if’s

There may be some silver linings in store for home buyers patiently waiting for rates to drop. But they’d be buried within some very dark clouds.

If the Bank of Canada did cut the overnight rate at some point in 2026, it would have to be a reaction to troubling economic indicators: rising unemployment and flatlining GDP growth.

A rate cut under those circumstances would make mortgages cheaper, but as we saw in 2025, Canadians don’t line up to buy homes when the economy stinks. It’s too risky.

A decrease in fixed rates isn’t out of the question, but a significant decline would depend on weakening government bond yields. Bond yields are often dragged down by the kind of negative economic news that sends investors running for safe haven assets like government debt.

As with variable rates, notably lower fixed rates might only materialize if the economy hits the skids.

Don’t wait in vain

If your homeownership plans get delayed because rates prove sticky, view it as an opportunity. Over the coming months there are several things you could do to keep yourself on track.

Sock away more for a down payment

Depending on the price range of the properties you’re eyeing, scraping together another $10,000 for a down payment could make a real difference. You’ll borrow a little less, shrink your mortgage payment and possibly be offered a better mortgage rate.

You’d need to save about $800 a month over the course of a year in order for this to happen, which may be too lofty a goal considering today’s cost of living. At the very least, take a look at your spending habits and see what fat can be trimmed and fed into your down payment fund.

If you haven’t opened one yet, consider putting your down payment savings in a First Home Savings Account. But only do this if you’re reasonably sure you won’t need to access the funds you deposit. Unqualified withdrawals will boost your tax bill.

Buy something smaller

If you’re a first-time home buyer, focus on the words “first” and “home.”

It might be helpful to tell yourself that you’re not buying your forever home, or one that checks every box on your dream home checklist. Give yourself permission to find something imperfect — but still affordable and comfortable enough that’s likely to appreciate over your mortgage’s first term or two.

That might be a small, older bungalow, a townhouse or — gasp! — even a condo unit. (But watch out for the maintenance fees when pricing out townhomes or condos.)

Talk to a mortgage broker

A mortgage broker should be the first person you speak to when starting your home buying journey.

Both independent brokers and bank mortgage advisors can pre-approve you to set realistic expectations around how much house you can afford. But a broker will generally follow up a pre-approval with a wider array of options: more lenders, different mortgage products, broader qualification guidelines.

A good broker should also be able to look at your finances and collaborate with you to map out a path to homeownership. Today’s rates might not be the blocker you think they are.

Just be wary of any broker who tells you they know for certain what’ll happen with mortgage rates this year. At best, we’re all just guessing.