Bank of Canada raises rate to 2.5%, adds cost for homebuyers
Posted by Kelly Brooks | Oct 29, 2026 | British Columbia Business News
The Bank of Canada pushed its benchmark rate up a quarter point to 2.5% on Oct. 28, its first upward move in over three years, BNN Bloomberg reported. Homebuyers will feel the change through costlier loans at a time when the property market is already struggling.
Policymakers cautioned that price pressures stemming from the Middle East war are likely to spread more widely. Expensive gasoline pushed September inflation up to 3.1%, and the bank argued that raising rates was required to keep high energy prices from feeding into the cost of other goods and services.
“There’s a number of things weighing on housing right now,” Carolyn Rogers, the bank’s senior deputy governor, told reporters, describing the sector’s prospects as “subdued.” She acknowledged that existing borrowing costs are a modest drag on the market and said a hike would add to that “a bit on the margin,” adding that the bank’s housing projections already factor everything in.
Industry reaction mixed on impact
Phil Soper, who heads Royal LePage as president and CEO, said the key unknown is whether the bank has made a one-off move or launched an extended stretch of tightening. In his view, the sector’s “prolonged weakness is already weighing on economic growth,” and costlier credit “will only deepen that challenge.”
Shawn Zigelstein, a Royal LePage Signature Realty broker, said he doesn’t think the hike will do much damage to consumer confidence for now. “It’s not like we are in a market like we were back in 2022,” he said, adding that “a quarter-point adjustment really shouldn’t make too much of a difference on someone’s mortgage payments.”
In his conversations with clients, Zigelstein said, worries about tariffs, job security and investments loom larger than rates themselves, though he cautioned that further shifts in rates could lead people to pull back on spending.
National sales and prices slip
The Canadian Real Estate Association said the average national selling price slipped 1.6% year over year in September to $666,538, and sales across the country fell 7.7% compared with the same month a year earlier. CREA blamed rising fixed mortgage rates along with what it described as a “notably more hawkish tone” from the Bank of Canada.
CityNews Toronto reported that the rate decision has had little effect on fixed mortgage rates, which had already risen over recent months in step with the bond market. Michael Waters, chief executive of developer Minto Group, warned that additional bond-market swings heading into 2027 could send mortgage costs sharply higher, which “would have a dampening impact on home purchases.”
Waters said that, all else being equal, higher rates “will reduce levels of purchaser activity for anything durable of size,” including cars and houses. “The housing sector is very slow right now,” he said.
Regional mortgage arrears diverge
Aled ab Iorwerth, CMHC’s deputy chief economist, said earlier this week that while Canada “is not facing a broad mortgage crisis,” pockets of financial stress are showing up in places like southwestern Ontario and the Greater Toronto and Hamilton region. He tied that to trade frictions hurting important manufacturing industries such as autos in those regions, which has created uncertainty in the job market and cooled local housing.
According to CMHC, Ontario’s mortgage arrears rate stood at 0.32% in the second quarter — still below past highs, but expected to keep rising until mid-2027. Over that same stretch, CMHC expects British Columbia and Atlantic Canada to see a gentler rise in mortgage arrears.
These “early warning signs, particularly in parts of Ontario, need to be monitored closely,” ab Iorwerth said in a CMHC news release.
Construction costs under pressure
Higher prices for energy and imported goods are expected to lift what it costs to build and maintain homes by making materials and equipment more expensive, the Bank of Canada said. Nicole Emmett, who oversees communications, marketing and member services as a vice-president at the Canadian Construction Association, said any increase in credit costs will also make it harder to get new projects built, notably housing and the infrastructure around it.
Emmett said in a statement that roads, sewers and watermains are essential to any home, and that higher borrowing costs “put pressure on the margins of the contractors building them,” margins she said are already strained by material costs and disruptions to global supply chains. She added that many contractors borrow to pay for equipment, materials and routine operations.
Waters said construction loans carry floating rates, so higher interest on them, combined with climbing input costs, “will squeeze margins” and may result in fewer large-scale projects being finished in the years ahead. Projects are “far more challenged today than they would have been six months ago, pre-Iran war,” he said. He predicted fewer developments would clear economic feasibility tests and more would probably stall until the market recovers, which could weigh on efforts to add new housing supply.
Re/Max Canada president Don Kottick said a rate hike “may give some buyers pause,” but argued that markets in many regions have become more balanced, offering purchasers wider choice and more negotiating leverage.