A Shift in Interest Rate Policy
On October 28, 2026, the Bank of Canada raised its overnight policy rate by 25 basis points, from 2.25% to 2.50%. This marks the first increase since July 2023, reversing a period of rate stability as policymakers respond to persistent inflationary pressures. Higher energy prices, rising business costs and stronger-than-expected economic activity contributed to the decision.
The Bank is concerned that elevated fuel and transportation costs could spread throughout the economy, making inflation more difficult to control. Although inflation excluding gasoline and several core inflation measures remain closer to the BoC’s 2% target, policymakers believe a rate increase is warranted to limit the risk of broader price increases.
What Is the Long-Term Interest Rate Outlook?
The BoC’s October projections indicate that inflation could remain above 3% through much of 2027 before easing toward its 2% target by mid-2028. Economic growth is forecast at approximately 1% in 2026, followed by 2% in both 2027 and 2028. However, trade tensions with the United States and uncertainty surrounding global energy prices continue to complicate the outlook.
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Further rate increases remain possible. The BoC has explicitly acknowledged that additional tightening may be necessary if inflation persists or spreads beyond energy-related costs. However, another increase is not guaranteed. Future decisions will depend on incoming inflation data, economic growth, employment conditions and international developments. The next scheduled announcement is December 9, 2026.
For buyers and homeowners, the important consideration is not simply whether rates will rise again, but how borrowing costs will evolve over the coming months and years to influence and shape their real estate purchasing decisions, especially with regard to real estate.
How Will the Rate Increase Affect Canadian Real Estate?
The immediate impact will be most apparent for borrowers with variable-rate mortgages and buyers relying on variable financing. Lenders typically adjust their prime rates following a change in the BoC’s overnight rate, which can increase borrowing costs for affected mortgage holders.
Fixed mortgage rates work differently. They are influenced primarily by Government of Canada bond yields and market expectations, meaning they can move independently of the BoC’s announcement. Fixed rates may rise or fall before the next policy decision as financial markets reassess the economic outlook.
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For prospective buyers, higher borrowing costs can reduce purchasing power, increase monthly payments and make mortgage qualification more challenging. In a market already affected by elevated housing costs, this could encourage some households to delay purchases or consider less expensive properties.
For sellers, the effect may be more cautious buyer behaviour, longer selling periods and greater sensitivity to pricing. However, outcomes will vary by region, property type, inventory and local demand. A rate increase does not automatically mean home prices will uniformly fall across Canada.
Affordability Remains a Central Challenge
Canada’s housing affordability problem extends beyond interest rates. Home prices, household incomes, property taxes, insurance, maintenance expenses and other living costs all influence whether a purchase is financially sustainable.
Higher mortgage rates can further widen the gap between what buyers would like to purchase and what they can comfortably afford. Some prospective homeowners may need larger down payments, while others may benefit from exploring different neighbourhoods, smaller properties or longer-term purchasing strategies.
Existing homeowners approaching mortgage renewal should also assess their future payments well in advance. Even borrowers who secured favourable rates in previous years may face a different financial situation when renewing, particularly if rates rise further.
What Should Buyers and Sellers Do Now?
For buyers, preparation is essential. Reviewing mortgage pre-approval terms, comparing fixed and variable options, and calculating payments under higher-rate scenarios can help establish a realistic budget. Waiting for rates to fall is not necessarily a reliable strategy, since borrowing costs, property prices and competition can change independently.
For sellers, understanding current local market conditions is equally important. Accurate pricing, thoughtful presentation and a clear understanding of comparable sales can help position a property effectively, even when buyers become more cautious.
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Ultimately, the Bank of Canada’s latest decision signals renewed concern about inflation rather than a predetermined series of rate increases. The direction of the housing market will depend on how interest rates, household finances, employment, housing supply and buyer confidence interact over time.
Planning Your Next Real Estate Move?
Whether you are preparing to buy, considering selling or reviewing your options in an uncertain market, understanding your local real estate conditions can help you make a more informed decision.
Thinking about your next move? Contact me for a free consultation to discuss your real estate goals and explore the options that make sense for you.
Disclaimer: The following information is for educational purposes and reflects general real estate market commentary. Because mortgage rules, qualification criteria, and financial products change frequently, readers should consult a licensed mortgage specialist or broker regarding specific mortgage questions.