Canada is now officially in a technical recession after the economy contracted for two consecutive quarters. Under normal circumstances, many people would expect the Bank of Canada to respond by cutting interest rates.
Instead, the Bank held its overnight rate steady at 2.25% on June 10 and signalled that it may remain on hold for quite some time. That has left many Ottawa homeowners and buyers wondering what happens next.
The Bank of Canada Has a Problem
Normally, a weaker economy makes the Bank of Canada more likely to lower rates. Lower rates encourage borrowing, spending, and investment, which can help stimulate economic growth. The challenge right now is that inflation has not completely disappeared.
While Canada’s economy has weakened, inflation remains near the upper end of the Bank’s target range. Recent increases in energy costs and ongoing global uncertainty have created concerns that inflation could become more persistent than policymakers would like.
That puts the Bank of Canada in a difficult position. Cut rates too quickly and inflation could move higher again. Raise rates and they risk putting additional pressure on an already weak economy. For now, the Bank appears to be choosing a third option: wait.
Why Economists Don’t Expect Rate Hikes
Even though inflation risks remain, many economists believe the Bank of Canada is unlikely to raise rates anytime soon. The main reason is that the underlying economy simply isn’t showing signs of overheating. Economic growth has been weak, consumer spending has slowed, and the Bank expects the economy to continue operating with excess supply. In simple terms, Canada currently has more economic capacity than demand.
Several major forecasters now expect the Bank of Canada to leave rates unchanged for the remainder of 2026. That’s a significant shift from earlier expectations that additional cuts might arrive this year. Instead of debating how many cuts might happen, economists are increasingly discussing how long rates may remain exactly where they are.
What This Means for Variable-Rate Mortgages
For homeowners with variable-rate mortgages, this is probably the most important takeaway. Variable-rate mortgage pricing is heavily influenced by the Bank of Canada’s overnight rate. At the moment, the most likely scenario appears to be a prolonged period of stable payments rather than significant decreases or increases. That doesn’t mean rates can’t change.
The Bank has made it clear that it is watching inflation closely and remains prepared to act if inflation pressures become more persistent. At the same time, it has acknowledged that economic growth remains weak. For borrowers, that means the outlook today is far more stable than it was over the past several years.
What This Means for Ottawa Homebuyers
Over the past year, many Ottawa buyers have been hoping that additional Bank of Canada rate cuts would improve affordability. While lower rates would certainly help, today’s environment suggests buyers may need to adjust their expectations. The good news is that mortgage rates are already well below the highs we saw in 2023 and early 2024.
The Ottawa housing market has also become much more balanced than it was during the pandemic years. Buyers generally have more choice, more time to make decisions, and less pressure to compete against multiple offers than they did just a few years ago. For many buyers, payment stability can actually be more valuable than uncertainty about where rates might go next.
The biggest mistake I see buyers make is putting their plans on hold indefinitely while waiting for one more rate cut. The reality is that nobody knows exactly where rates will be six months from now. What we do know is that today’s borrowing costs are substantially lower than they were at the peak of the rate cycle, and many economists now expect the Bank of Canada to remain on hold for an extended period.
If you’re financially ready to buy, waiting for a small rate move may have less impact than many people think.
My Advice
Canada’s economy may be in a technical recession, but that doesn’t automatically mean interest rate cuts are coming.
The Bank of Canada is balancing two competing risks: a weak economy and inflation that remains higher than it would like. As a result, policymakers appear comfortable keeping rates where they are while they gather more data.
For Ottawa homeowners and buyers, the most likely outcome today is a period of stability rather than dramatic rate changes. And after several years of rapid increases, rapid cuts, and constant uncertainty, a little stability may be exactly what the market needs.
To learn how these updates impact your circumstances personally, contact me.
