The Bank of Canada Holds As Clouds Form Over The Housing Market

The Bank of Canada’s interest rate announcements have begun to feel like they’re being delivered by a travelling theatre company: same lines, different backdrop.

While the stage for the Bank’s September 2 rate decision was lit a little more harshly than usual (being engulfed in flames will do that), the script was familiar: To maintain Canada’s fragile economic balance, the prudent move is to continue holding the overnight rate at 2.25%.

Fair enough. Full-time employment increased by about 193,000 from April through July, while inflation, minus gasoline prices, has held steady at 2.2% for three months in a row. Those aren’t trends the Bank wants to derail.

A rate cut at this juncture could prove inflationary, driving prices higher and putting more pressure on Canadian households that are already nearing a breaking point. A rate hike could throttle borrowing and business investment.

This is particularly true in the housing market, which has struggled to outperform even 2025’s sickly sales totals. Approachable variable mortgage rates, which have hovered around 3.4% thanks to seven consecutive rate holds, have provided a lifeline for some buyers and renewing homeowners this year.

A rate hike wouldn't just increase borrowing costs for variable-rate mortgage holders. It might also shut the door on borderline buyers at a time when housing demand may be about to crater in two of Canada’s biggest provincial housing markets.

Trade war, round two: Is a knockout coming?

In June 2026, NerdWallet’s Real Estate Sentiment Report found that Canada’s trade dispute with the U.S. was an obstacle to buying a home for only 6% of Canadians.

That was before the trade war entered its most dangerous phase. Donald Trump’s latest offensive — 50% tariffs on a range of Canadian goods announced on August 22; additional 50% levies threatened for vehicles and steel — could have serious implications for Canadians considering a home purchase in the coming months.

Nowhere is this more of a risk than in Ontario, where Trump’s proposed tariffs could level the province’s auto industry, and Quebec, where multiple sectors of its manufacturing-reliant economy could be put at risk.

These looming tariffs aren’t scheduled to go into effect until January 1, 2027. A lot can happen between now and then, including new forms of government support and another of Trump’s patented flip-flops.

But with Trump’s attitude toward Canada becoming especially ugly, the threat feels real. If those auto and steel tariffs are introduced, declining Canadian exports to the U.S. and acute job losses become distinct possibilities.

The fall(ing) market

For those working in Ontario’s auto industry, Quebec’s lumber or machinery sectors, or in ancillary businesses, a period of imminent disruption won’t be a source of home buying confidence. A general sense of uncertainty and negativity could further dampen demand for months.

That would be a shame, as Ontario and Quebec have been relative bright spots for home sales in what’s been a topsy-turvy 2026.

The Ontario market has bounced solidly off its bottom. In July, it enjoyed the second-highest monthly sales gain of any province. Year-to-date, sales were 1.9% short of the first seven months in 2025 — the best performance of any province this year.

Quebec’s market, while cooling after a torrid hot streak, was one of only four provinces to see home sales improve from June to July. After Ontario, Quebec has posted the smallest year-to-date sales decline of any province.

If each market hits the skids this fall, kiss any possibility of national home sales improving this year goodbye. And if the Bank of Canada is somehow forced to cut the overnight rate in October or December, don’t expect it to knock loose any pent-up demand. The country will be in defense mode.