On the Radar: The Bank of Canada Held Rates, but the Real Story Was What It Said About Housing. What Does It Mean for Mortgage Rates?

Economic insights
May 1, 2026

First National Financial LP

Quick Takes:

The Bank of Canada held its policy rate at 2.25% on Wednesday for the fourth consecutive time, but the Monetary Policy Report revealed that housing is now expected to drag GDP growth by 0.1 percentage points in 2026, a sharp reversal from the 0.2 percentage point boost forecast in January.
March home sales were 20% below the 10-year average and the lowest for that month since the 2009 financial crisis, while a record 4,295 completed condo units sat unsold in the Toronto and Hamilton region.
Governor Macklem warned that rates “may need to be nimble,” with possible consecutive rate increases if oil prices bleed into broader inflation, or cuts if U.S. trade restrictions hit Canada.
Not a single new condo project launched in the Greater Toronto and Hamilton Area in the first quarter of 2026, the first time that has happened in at least 35 years.

On Wednesday, the Bank of Canada held its policy rate at 2.25 percent, and nobody was surprised because markets had priced a hold at better than 90 percent odds. What caught attention was buried inside the Monetary Policy Report: the Bank now expects housing to subtract from economic growth this year, reversing its January forecast entirely.

That downgrade, combined with record unsold condo inventory in Toronto and national home sales at their weakest March since the financial crisis, tells a story that matters more to mortgage holders than the rate hold itself. The housing market is not waiting for lower rates to recover. It is actively dragging the economy down.

The Bank of Canada Downgraded Housing from Tailwind to Headwind

In January, the Bank’s Monetary Policy Report (MPR) projected that residential investment would add 0.2 percentage points to GDP growth in 2026. But on Wednesday, that number flipped to negative 0.1 percentage points. That swing of 0.3 percentage points in a single quarter signals that the Bank sees the housing downturn deepening rather than stabilizing.

The MPR pointed directly at the condo market. “A substantial inventory overhang of small condominiums in some major centres will restrain new construction,” the report said. Residential investment is expected to stay subdued for the next two years, with housing demand forecast to “grow modestly” in part because investor interest has evaporated.

Housing activity declined in the fourth quarter and has not recovered since. The Bank cited slow population growth, economic uncertainty, and ongoing affordability challenges as the forces holding it back.

Toronto’s Condo Market Hit a 35-Year Low

So what does the Bank’s downgrade look like on the ground? According to Urbanation, a record 4,295 newly completed condo units were sitting unsold in the Toronto and Hamilton region at the end of the first quarter, more than double the level from a year ago and nearly five times higher than two years ago. Based on recent sales, that represents 92 months of supply.

Meanwhile, preconstruction condo sales collapsed to just 246 units in the first quarter, down 52 percent from a year earlier and far below the 10-year average of 4,046. Not a single new project launched in the Greater Toronto and Hamilton Area during the quarter, the first time that has happened in at least 35 years.

Investors used to account for at least 70 percent of preconstruction purchases. They have disappeared because the math no longer works. Preconstruction prices still sit 38 percent above resale levels, and many investors who bought during the boom are losing money every month because rents do not cover their mortgage payments, condo fees, and property taxes.

Another 8,629 unsold new condos are still under construction and will hit the market over the next few years. Developers have started cutting prices, down 5 percent year-over-year to an average of $1,189 per square foot. Ottawa and Ontario's HST rebate on new homes is expected to lower effective prices by roughly $100,000 per unit, but it will take time to absorb the backlog.

National Sales Hit Their Weakest March Since the Financial Crisis

Toronto's condo glut is the sharpest example, but the broader housing market is struggling nationally. According to the Canadian Real Estate Association, March home sales were 20 percent below the 10-year average and the lowest for that month since 2009. Sales were essentially flat month-over-month, declining just 0.1 percent, and fell 2.3 percent from a year earlier.

Housing starts are fading too. According to Canada Mortgage and Housing Corporation, the six-month trend declined 2.9 percent from February to March, to 248,378 units, while the seasonally adjusted annual rate fell 6 percent in a single month. Developers have cancelled or postponed dozens of projects, and the pipeline of future construction is shrinking.

Macklem Held Rates but Left the Door Open in Both Directions

The rate hold was expected. What stood out was how explicitly Governor Macklem described the two-sided risk facing the Bank. If the oil shock fades and tariffs stay at current levels, he said a rate “close to current settings looks appropriate” and any changes “can be expected to be small.”

However, if oil prices stay elevated and start bleeding into broader consumer prices, Macklem warned there “may be a need for consecutive increases in the policy rate.” On the other side, if the United States imposes significant new trade restrictions through the USMCA review starting July 1, the Bank “may need to cut the policy rate further to support economic growth.”

The MPR’s baseline forecast projects GDP growing 1.2 percent in 2026 and 1.6 percent in 2027. Inflation is expected to average 2.3 percent this year, up from the 2.0 percent forecast in January, peaking at roughly 3 percent in April before easing back to 2 percent by early 2027. Brent crude hit US$117 on Wednesday, while WTI reached US$105, both far above the Bank’s January assumption of US$60.

What This Means for Canadian Mortgage Rates

Variable rates are tied to the Bank’s overnight rate, which is holding at 2.25 percent. If Macklem’s baseline scenario plays out and oil prices ease, the rate stays roughly where it is and any moves are small. Variable-rate holders should not expect meaningful relief soon, but they also should not fear a sudden jump unless oil prices get worse.

Fixed rates follow Government of Canada bond yields, and the housing downturn is disinflationary because weaker construction activity and falling home prices pull demand out of the economy. Over time, that should put downward pressure on bond yields, but right now the oil shock and elevated U.S. Treasury yields are pulling in the other direction. Fixed rates are caught between a weakening domestic economy and a global energy crisis.

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