The Federal Open Market Committee, the Bank of Canada’s equivalent of the Governing Council, announced last week that it would raise the overnight federal funds rate by 25 basis points to 3.75%-to-4.0%. The key question is whether it’s a one-off or the start of something deeper and longer.

We suspect the latter. The Fed has more work to do. Resilient U.S. growth, easy financial conditions, and persistent inflation pressures point to another hike in December and further tightening in the first half of 2027.

Under Kevin Warsh, the Fed appears increasingly willing to base policy on observable outcomes rather than uncertain model estimates. US growth remains above trend, unemployment is low, initial unemployment insurance claims are below 200,000, financial conditions remain supportive, capital spending is booming, and inflation has exceeded its 2% target for five and a half years. These conditions explain the unanimous hike and the signal of another hike before year-end, while reinforcing perceptions of the Fed’s political independence and credibility as the Fed and Treasury pull in opposite directions.

The Iran war has been more than an energy shock; it is another global supply-chain disruption. Although far smaller than COVID, it is still significant—and its timing could hardly be worse after years of central-bank inflation overshoots.

Commodity prices are surging, suggesting a broader and more powerful shock than the initial response to Russia’s 2022 invasion of Ukraine. Metal demand, energy demand, and agricultural prices have all increased, contributing supply strain, resulting the overall inflation.

So where does this lead the Bank of Canada when they next meet on October 28? I am sorry to say that the odds favour a rate hike, although it is a close call. I would assign roughly a 60% probability to a hike and a 40% chance of another (the eighth) rate hold. Markets are taking a similar view. As of September 21, CORRA (Canadian Overnight Repo Rate Average)- based pricing implies about a 63% chance of an October hike. The Fed’s rate hike reinforces a broader global tightening cycle.

Canadian headline inflation, though below the US, is still running at a 3% pace. High oil and refined-product prices are lasting longer than the Bank of Canada expected. The longer they remain elevated, the greater the danger that transportation, food and other business costs begin spreading into broader inflation. Canadian counter-tariffs will add some upward pressure to costs, even if the initial effect is modest. Q2 growth was a surprisingly strong 3.3% annualized, with gains in consumption, exports and business investment. Waiting until December could allow inflation expectations and pricing behaviour to become less well anchored.

The Bank’s September deliberations were quite revealing: The Governing Council explicitly said that if energy inflation began spreading into other CPI components, “it could require a monetary policy response.”

Bottom Line

The Bank will not hike simply because the Fed did. It will hike if the October Monetary Policy Report concludes that high energy prices and tariffs are beginning to produce persistent, broader inflation.

My call today: October 28: 25-basis-point hike to 2.50%, accompanied by cautious language and no commitment to a continuing series of hikes.

The decisive evidence will be the next two CPI reports—especially CPI excluding gasoline, core measures and services inflation—along with September employment, wage growth and the Bank’s revised estimate of the output gap. A further weak employment report combined with core inflation remaining near 2% would probably produce another hold.

The economic headlines over the last few years have felt relentless. Between rate shifts, inflation spikes, and global uncertainties, it’s easy for both buyers and property owners to feel overwhelmed.

However, looking past the media noise reveals a different story. At the recent PacWest Real Estate Conference, BCREA Chief Economist Brendon Ogmundson presented a grounded, data-driven look at the British Columbia real estate landscape.

Here is what is actually happening under the hood—and why the mid-to-long-term outlook points toward a steady turnaround.

1. Macro Economic Shocks: Why Rates Stayed Higher for Longer

Traditional market downturns happen when consumer demand drops, prompting central banks to cut rates to spur a quick recovery. What we’ve experienced recently is fundamentally different: a series of external exogenous supply shocks.

• Global Catalysts: Post-pandemic supply chain stress, US tariff uncertainties, Middle East geopolitical conflicts, and local labor force contractions.

• The Energy & Diesel Impact: Geopolitical conflicts pushed oil refining margins (crack spreads) to nearly $100/barrel (compared to historical norms of ~$12). This spiked diesel prices to ~$2.70/L. Because diesel powers shipping and trucking, higher transport costs flowed directly into core consumer inflation, forcing central banks to maintain higher interest rate floors.

2. The “Vibe Index” vs. Household Realities

Why are buyers feeling so hesitant? While headline inflation has cooled, household purchasing power remains squeezed.

Since 2021, essential living costs—specifically food and shelter—have risen by approximately 30%, while median weekly wages have grown ~20%. That ~10% gap explains buyer fatigue far better than top-line economic stats.

The Good News: Perceived risk of job loss (which peaked near 20% due to tariff and AI concerns) is cooling back toward historical averages (~14%). As household security stabilizes, sidelined buyers will naturally re-enter the market.

3. A Tale of Two BC Markets

The BC real estate market is far from uniform across regions:

• Interior & Island Resilience: Regions like Northern BC, the Okanagan, Victoria, and Vancouver Island have held relatively steady, with sales volume tracking within 5% of 10-year historical averages.

• Lower Mainland Challenges: Higher living costs and softer employment figures have created a stickier market. Metro Vancouver is also navigating a backlog of ~5,000 completed, unsold new condo units.

• The Fraser Valley Divergence: While home prices across most of BC have remained flat to moderately down supported by home equity, the Fraser Valley experienced steeper price corrections (~25% off peak) due to heavier localized inventory accumulation and softer local employment.

4. Mid-to-Long-Term Recovery Drivers (2027–2028)

Looking ahead, several structural drivers point toward a steady market rebound:

1. Demographic Rebound: Following temporary immigration policy caps, growth in BC’s prime home-buying cohort (ages 25–54) is forecasted to bounce back by +25,000+ people in 2027.

2. Major Infrastructure Capex: Federal and provincial “Build Canada” projects—including LNG Canada Phase 2, Ksi Lisims LNG, North Coast transmission lines, and major mining expansions—will inject tens of billions into BC’s economy.

3. Corporate Tax Advantages: Canada’s new Mega Deduction policy drops the marginal effective tax rate (METR) on capital investment to 6.4% (well below the US at 16.9%), incentivizing significant private sector investment.

4. Sales Baseline Forecast: BCREA forecasts show BC home sales steadily recovering from current cyclical lows back toward the 10-year historical average baseline through 2027, backed by Real GDP growth returning toward its 2.5% long-term trendline.

What This Means For You

Navigating this market isn’t about timing the exact bottom; it’s about strategic planning. Whether you are evaluating upcoming mortgage renewals, considering a buy-side opportunity, or restructuring existing debt, having accurate data is key.

Have questions about how these macro trends impact your personal mortgage strategy?

👉 Book a strategy chat here: www.ChatWithTheMortgageMaven.com

Housing Market Activity Picked Up Again in July As New Listings Slowed and Prices Ticked Up For the First Time in Almost Two Years

According to data released this morning by the Canadian Real Estate Association (CREA), the Canadian housing market continued to improve in July. Home sales increased month-over-month (m/m) by 0.5%, marking the fourth consecutive monthly gain.

Shaun Cathcart, CREA’s Chief Economist, said, “At the national level, July’s housing data was a carbon copy of the June numbers, with home sales edging up, listings down, and prices remaining stable. The more interesting story over the last few months has been below the surface of the headline national numbers, where markets across the country are generally moving back towards balance. That’s true on the Prairies, in Quebec, and on the East Coast, where most sellers’ markets have been steadily cooling off over the past year. More recently, it’s also been true of the markets in B.C.’s Lower Mainland and Ontario’s Greater Golden Horseshoe, where formerly buyers’ or borderline buyers’ markets have largely shifted back into balanced market territory.”

New Listings

New listings declined by a further 1.6% on a month-over-month basis in July 2026, marking the third drop in a row.

Combined with the small increase in sales recorded in June, the national sales-to-new listings ratio tightened to 51.3% in July. This is converging on the long-term average for the national sales-to-new listings ratio of 54.7%. Readings roughly between 45% and 65% are generally consistent with balanced housing market conditions.

“The ongoing shift towards a more normal balance between supply and demand in so many markets across Canada is good news for buyers, whether that means not having to worry about your new home falling in value, or not feeling pressured to make a decision due to competing offers,” said Garry Bhaura, CREA Chair. “No matter where you are in Canada, more moderate housing market conditions can be expected to continue to bring buyers off the sidelines going forward.”

There were 205,388 properties listed for sale on all Canadian MLS® Systems at the end of July 2026, up just 0.6% from a year earlier and just 1.5% above the long-term average for that time of the year. Overall supply has been sliding sideways and is very close to average levels for over a year now.

There were 4.7 months of inventory nationally at the end of July 2026, the lowest level so far in 2026 and slightly below the long-term average of 5 months. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

With the exception of Saskatchewan, New Brunswick, and Newfoundland and Labrador, which are still borderline sellers’ markets, other provinces have seen their months of inventory converge toward long-term averages in recent months. Notably, even Ontario’s months of inventory measure was only about half a standard deviation above average in July, after being in a buyers’ market for the first four months of this year.

Home Prices

The National Composite MLS® HPI edged up 0.1% from June to July, marking the first increase in the national measure since November 2024.

The non-seasonally adjusted National Composite MLS® HPI was down 3.3% compared to July 2025. Year-over-year declines have been shrinking since January, with the July 2026 reading marking the smallest decrease since October 2025.

Bottom Line

The brief opening of the Strait of Hormuz triggered a sharp decline in oil prices and market-driven interest rates. Alas, the opening was short-lived as the war resumed in spades.

Despite an ongoing trade war with the US, Canada’s largest trading partner, the country’s economy appears to be picking up. The unemployment rate fell to a two-year low last month, and the latest reading on gross domestic product suggests annualized growth rebounded to 3.4% in the second quarter, higher than the central bank’s previous estimate.

While the inflation data for July ticked up a bit, the rise in gasoline prices has not spurred a generalized rise in price pressures. We believe the Bank of Canada will remain on the sidelines once again at its September 2 meeting.

South of the border, however, US long-term Treasury yields have been boosted by the crowding-out effect of the huge corporate bond financing of the AI hyperscalers.

Monday saw the yield on the 30-year US Treasury bond top 5.3% for the first time since the eve of the Global Financial Crisis in 2007, and that’s in line with global experience; Japanese 30-year yields have risen above 4% for the first time in their 27-year history, while equivalent UK gilts yield their highest since 1998. Rising long-term yields have pushed up mortgage rates in the UK, Europe and Japan.

To be sure, some of the upward rate pressure reflects inflation expectations, but three other factors are also at play: the budget deficit outlook; AI-related corporate bond issuance; and the changing Treasury buyer base. With companies issuing huge amounts of debt to fund AI capex, long Treasuries have a new competitor that might force them to offer a stronger yield, while the growing budget deficit never goes away as an issue.

While Canada’s fiscal situation is nowhere near as dire as the American fiscal imbalance, Canada cannot fully sidestep upward pressure on market-driven rates.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian CPI Inflation Edges Up to 3.0% in July, While Core Inflation Remains Below Its 2% Target

The Consumer Price Index (CPI) rose 3.0% y/y in July, following the June gain of 2.8%. The inflation uptick was caused by higher gasoline prices and a rise in the cost of travel tours. Slowing the faster price growth was the deceleration in grocery prices. The all-items CPI excluding gasoline rose 2.2% for the third consecutive month.

Year over year, gasoline prices grew faster in July (+25.7%) than in June (+20.5%). The conflict in the Middle East, including the blockade of the Strait of Hormuz and the partial closure of Red Sea shipping routes in late July, put upward pressure on gasoline prices.

Year over year, prices for travel tours rose faster in July (+15.2%) than in June (+6.8%). Higher prices were driven by more expensive hotels and flights, coinciding with World Cup matches.

Similarly, air transportation prices rose 12.0% year over year in July, following a 9.6% increase in June. Contributing to the price increase were higher jet fuel costs.

The average of the Bank of Canada’s preferred core measures of inflation rose by 1.95%, barely rising from the previous month and remaining below its 2% target.

Prices for food purchased from stores grew more slowly in July (+3.1%) than in June (+3.9%) on a year-over-year basis. Despite the slowdown, July was the 18th consecutive month that grocery price inflation outpaced the all-items CPI.

The year-over-year deceleration in grocery prices was driven by slower price growth for fresh vegetables (+3.9%) and fresh or frozen chicken (+0.3%) as well as lower prices for cereal products (-1.7%). Higher prices for fresh fruit in July (+6.1%) compared with June (+1.7%) moderated the slowdown.

On a monthly basis, price growth for fresh fruit recorded the highest month-over-month movement for the month of July since 2011, at 4.7%. Driving the monthly increase were higher prices for berries and melons.

Year over year, prices rose faster in all provinces in July than in June, except for Ontario.
Year over year, Ontario was unchanged at 2.0% in July compared with June (+2.0%). This was the smallest price increase among the provinces, driven by declines in homeowners’ replacement cost (-4.6%) and natural gas prices (-18.7%).

Nova Scotia had the highest rate of inflation among the provinces at 5.0% in July. Higher prices for electricity (+3.3%) and rent (+8.7%) drove the acceleration.

In New Brunswick, faster price growth was led by higher prices for electricity (+4.4%) and traveler accommodation.

The 12-month change in the Consumer Price Index (CPI) and CPI excluding gasoline

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader resurgence in underlying inflation. While food and shelter continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid slowing domestic demand.

The duration of the disruption in the Strait of Hormuz remains a key risk. The longer the shipping route remains closed, the longer energy prices are likely to remain elevated. Even so, the June data support our base-case scenario that the Bank of Canada will remain on hold through the remainder of 2026. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent. Still, for now, underlying inflation trends remain consistent with a patient, wait-and-see approach.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Market  Momentum Persists in June, and the Bank of Canada Held Rates Steady

Canada’s housing market gained meaningful momentum in May and June. The number of home sales recorded over Canadian MLS® Systems edged up a further 0.5% on a month-over-month basis in June 2026. This builds on the 5.5% jump recorded in May and the 0.9% increase in April, placing national activity some 7% above its March level.

As CREA Senior Economist Shaun Cathcart noted, while May and June marked the first significant increases in headline sales activity in 2026, underlying market conditions have been improving for several months. Buyers and sellers are increasingly finding common ground on pricing, reflected in firmer sale-to-list price ratios, shorter selling times, and a marked slowdown in price declines. These developments suggest that the period of market adjustment is largely behind us and that home prices are beginning to find a floor.

In other news, the Bank of Canada announced this morning that it would hold the overnight rate steady at 2.25% for the sixth consecutive time. The press release stated that Canada’s economy was showing signs of improvement and inflation is projected to ease gradually from its recent spike. There are still important risks and uncertainties related to the war in the Middle East and US trade policy.

The bottoming in home prices is far more evident in single-family homes than condos, which are still in excess supply, especially in Ontario, which has suffered a marked decline in population with the ouster of many temporary workers and international students and the decline in new permanent residents. The hardest hit have been the steel and aluminum sectors, forest products, and automobiles–all subject to sizable US tariffs.

Since the BoC’s April Monetary Policy Report (MPR), global economic prospects have been dented by higher oil prices stemming from the Middle East conflict. At the same time, the development of artificial intelligence (AI) is supporting economic activity in an increasing number of countries. Oil prices are still below their April peak, but the situation in the Middle East remains volatile. The path of global inflation depends heavily on how the conflict unfolds.

The central bank added that financial conditions in Canada have eased since April and global equity markets have been buoyant. US bond yields have risen, while those in Canada are little changed. This differential has contributed to the depreciation of the Canadian dollar.

“Following GDP growth of 0.7% in 2026, the Bank projects the economy will grow by 1.8% in both 2027 and 2028. As the recovery proceeds, economic slack will be gradually absorbed.”

CPI inflation rose further to 3.2% in May, mainly because of higher gasoline prices linked to the war in the Middle East. Excluding gasoline, inflation was 2.2%, and measures of core inflation remained near 2%. Near-term inflation expectations are sensitive to changes in gasoline prices, but longer-term inflation expectations remain well anchored. War-related cost pressures are still working their way through some consumer prices but are being offset by downward pressure on other prices from continued economic slack. CPI inflation is expected to remain elevated in June and then ease gradually in the coming months, returning to around 2% in early 2027, although this forecast depends on the path of oil and gasoline prices. Inflation is forecast to average around 2% in 2027 and 2028, albeit with some monthly fluctuations because of base-year effects.

Governing Council judges the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target, in line with the MPR projections. Uncertainty is still high. Governing Council will continue to assess the strength of the Canadian economy and the outlook for inflation, and is prepared to adjust monetary policy as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.

Pent-up demand for housing, accumulated over the past two years, is starting to intersect with improved affordability and lower home prices, particularly in Ontario and British Columbia, where price corrections have been most pronounced. As confidence gradually returns, this combination could generate a sustained increase in sales activity through the second half of the year.

The single-family home market, where end-user demand remains strong, is leading the market. The condominium sector, particularly smaller investor-oriented units in major urban centers, continues to face headwinds from higher carrying costs, softer rental markets, and diminished investor participation. Even so, as financing conditions improve and excess inventory is absorbed, activity in the condo market should gradually strengthen.

Taken together, stabilizing prices, balanced market conditions, and rising sales suggest that Canada’s housing market is entering a healthier and more sustainable phase. While regional and segment-specific challenges remain, the broader national trend shows the market regaining its footing and building momentum through the summer.

New Listings

New listings fell back 1.3% on a month-over-month basis in June 2026, marking a second straight decline.
There were 208,578 properties listed for sale on all Canadian MLS® Systems at the end of June 2026, up just 0.6% from a year earlier and 0.8% above the long-term average for that time of the year.

There were 4.8 months of inventory nationally at the end of June 2026, unchanged from May, and the lowest level so far in 2026. This remains close to but slightly below the long-term average for this five-month measure. Based on one standard deviation above and below that long-term average, a sellers’ market would be below 3.6 months, and a buyers’ market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) held steady from May to June, marking the first time the measure has not declined month over month since January 2025.

Taken together, moderating price declines, stable listings, and inventory levels near historical norms suggest that housing market conditions are becoming less challenging for both buyers and sellers. As confidence improves and borrowing costs continue to ease, sales activity could strengthen further in the second half of the year.

Bottom Line

The brief opening of the Strait of Hormuz triggered a sharp decline in oil prices and market-driven interest rates. Alas, the opening was short-lived as the war resumed in spades. So far, oil price increases have been muted, but uncertainty abounds. President Trump vows to escalate attacks until Iran relents on Hormuz.

US CPI inflation data for June were released this week, showing a decline in month-over-month inflation. Treasuries rose after a report on producer prices reinforced optimism that US inflation has peaked and may curb the need for the Federal Reserve to raise interest rates. The Treasury market had its best day in three weeks Tuesday after a report on consumer prices showed more deceleration than economists had estimated.

The rally trimmed yields across maturities by as much as three to four basis points for short-dated tenors, which are more sensitive to Fed rate adjustments.

We concur with economists surveyed by Bloomberg who expect the Bank of Canada to hold rates at the current level for the rest of the year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation Rose to 3.2% in May as Core Inflation Remained Subdued

Higher gasoline prices pushed Canadian inflation to a more than two-year high, while underlying inflation pressures showed little sign of accelerating, with core measures broadly unchanged and price gains less broad-based.

Canada’s annual inflation rate rose to 3.2% in May, Statistics Canada reported Monday, marking its highest level since December 2023. The increase exceeded economists’ expectations, with Bloomberg’s survey consensus forecasting a 3.0% gain, up from 2.8% in April. On a monthly basis, consumer prices climbed 1.0%, also coming in above forecasts.

Despite the headline surprise, measures of underlying inflation suggest price pressures remain relatively contained as the economy continues to adjust to slower population growth and the adverse effects of U.S. trade policies on exports.

Excluding food and energy, inflation accelerated to 1.6% year-over-year, while the consumer price index excluding gasoline increased 2.2%. The average of the Bank of Canada’s preferred core inflation measures—the trim and median indexes—held steady at 2.1%. However, on a three-month annualized basis, both gauges picked up sharply to 2.3%, indicating some recent firming in underlying inflation trends.

Financial markets initially interpreted the report as supportive of tighter monetary policy. The Canadian dollar strengthened briefly before reversing course, trading at US$0.7062 per Canadian dollar. Meanwhile, the two-year Government of Canada bond yield rose roughly two basis points to 2.79%. Overnight index swaps continue to price in nearly one quarter-point Bank of Canada rate increase by year-end.

The conflict in the Middle East continued to drive higher energy costs in May, with gasoline prices rising 33% from a year earlier, according to Statistics Canada. Air transportation prices also surged, increasing 7.4% after falling 1.7% in April. Airlines are experiencing higher operational costs, notably for jet fuel.

Since then, easing tensions between the United States and Iran has helped push oil prices lower, with Canadian gasoline prices retreating to their lowest levels since mid-March. If sustained, the decline should provide some relief to consumers and help moderate headline inflation in the months ahead. Earlier this month, Bank of Canada Governor Tiff Macklem said he expects inflation to remain near 3% in the near term before gradually returning to the central bank’s 2% target.

Gasoline prices increased 33.2% year-over-year in May, accelerating from a 28.6% gain in April. The escalation was largely driven by supply concerns linked to the conflict in the Middle East, particularly disruptions associated with the closure of the Strait of Hormuz. These uncertainties pushed gasoline prices higher for a third consecutive month. As a result, Canadians paid the highest prices at the pump since June 2022, when Russia’s invasion of Ukraine triggered similar supply fears and a sharp increase in global energy costs.

Four of the eight major components accelerate in May

Prices for fresh fruit rose at a faster pace year over year in May (+5.3%) compared with April (-0.5%). Berries and grapes mostly drove the acceleration. On a year-over-year basis, prices for fresh vegetables increased 9.0% in May, following a 4.1% rise in April. The upward movement was attributed to higher prices for broccoli, cauliflower, tomatoes and lettuce. Tomato prices rose 45.2% in May due to supply contractions in Mexico, stemming from poor weather and a reduction in planted acreage following the implementation of US tariffs.

On a month-over-month basis, prices for fresh vegetables rose 5.5% in May following a decline of 3.9% in April. This is the largest monthly increase in May since 2008 and is attributed to reduced supply and higher fuel costs.

Collectively, higher prices for fresh fruit and fresh vegetables contributed to an acceleration in inflation for food purchased from stores, rising 4.3% year over year in May, the 16th consecutive month it has outpaced headline inflation on a year-over-year basis. Food prices will continue to rise, reflecting a 40% increase in nitrogen fertilizer prices during the planting season.

Shelter inflation continued to moderate in May, with prices rising 1.7% year-over-year, down slightly from 1.8% in April. The homeowners’ replacement cost index fell 2.5%, marking its 13th consecutive decline. Other owned accommodation expenses, including real estate commissions, decreased 2.1% following a 2.7% drop in April. Meanwhile, mortgage interest costs edged lower, declining 0.2% year-over-year compared with a 0.1% decline in April, extending a 33-month trend of slowing mortgage cost inflation.

Rent inflation also eased modestly, rising 3.5% from a year earlier versus 3.6% in April, the slowest pace of rent growth since January 2022.

Price growth for durable goods was unchanged at 1.9% year-over-year in both April and May. A notable source of upward pressure came from computer equipment, software, and supplies, where prices rose 3.9% after declining 0.2% in April. Higher costs for key components such as random-access memory (RAM) and solid-state drives (SSDs), driven by strong demand from artificial intelligence data centres and limited production capacity, contributed to the increase.

Offsetting some of these gains, price growth slowed across several other durable goods categories. Increases were more modest for tools and household equipment (+1.1%) and passenger vehicles (+2.5%), while prices for household appliances fell 5.7% year-over-year, a steeper decline than previously recorded.

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices will temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader surge in underlying inflation. While food and transportation continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid a softer labour market and slowing domestic demand.

May data support our base-case scenario that the Bank of Canada will remain on hold through the remainder of 2026. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent, but for now, underlying inflation trends remain consistent with a patient, wait-and-see approach.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Market Regains Momentum, Providing a Strong Handoff into Summer

Canada’s housing market gained meaningful momentum in May, with sales posting their strongest monthly increase of the year and leading indicators pointing to further improvement in June. After months of uncertainty, the market appears to be transitioning from stabilization to recovery as lower borrowing costs, easing energy prices, and improved affordability begin to draw buyers back into the market.

As CREA Senior Economist Shaun Cathcart noted, while May marked the first significant increase in headline sales activity in 2026, underlying market conditions have been improving for several months. Buyers and sellers are increasingly finding common ground on pricing, reflected in firmer sale-to-list price ratios, shorter selling times, and a marked slowdown in price declines. These developments suggest that the period of market adjustment is largely behind us and that home prices are beginning to find a floor.

The next phase of the housing cycle may now be taking shape. Pent-up demand, accumulated over the past two years, is starting to intersect with improved affordability and lower home prices, particularly in Ontario and British Columbia, where price corrections have been most pronounced. As confidence gradually returns, this combination could generate a sustained increase in sales activity through the second half of the year.

The single-family home market, where end-user demand remains strong, is leading the market. The condominium sector, particularly smaller investor-oriented units in major urban centres, continues to face headwinds from higher carrying costs, softer rental markets, and diminished investor participation. Even so, as financing conditions improve and excess inventory is absorbed, activity in the condo market should gradually strengthen.

Taken together, stabilizing prices, balanced market conditions, and rising sales suggest that Canada’s housing market is entering a healthier and more sustainable phase. While regional and segment-specific challenges remain, the broader national trend shows the market regaining its footing and building momentum through the summer.

New Listings

New listings declined by 1.0% in May and were down 7.9% from a year earlier, helping keep the national housing market in balance despite still-modest sales activity. Overall, Canada’s housing market can best be described as stable, although conditions vary considerably by region and property type.

Notable pockets of weakness remain in the Greater Toronto Area, Southwestern Ontario, and parts of British Columbia, particularly in the condominium segment. Smaller investor-oriented condos continue to face the greatest challenges. Much of the exceptional demand for these properties during the pandemic years was driven by investors, but that source of demand has weakened considerably. Higher carrying costs, softer rental markets, and slower population growth following significant reductions in immigration targets have all reduced the attractiveness of investment properties.

At the end of May, there were just over 200,000 properties listed for sale across Canadian MLS® Systems on a non-seasonally adjusted basis. That was essentially unchanged from a year earlier and 2.8% below the long-term average for this time of year, suggesting that supply remains relatively well contained at the national level.

The months-of-inventory measure fell to 4.8 months in May from 5.1 months in each of the previous three months. This is very close to the long-term average of five months and is consistent with a balanced national market. Historically, inventory levels below 3.6 months have signalled seller’s market conditions, while readings above 6.4 months have been associated with buyer’s markets.

Taken together, declining new listings, stable inventory, and moderating price declines suggest that Canada’s housing market is gradually finding equilibrium. While certain regions and market segments continue to face adjustment pressures, national conditions have become considerably more balanced than they were earlier in the cycle.

Home Prices

The Canadian housing market continues to show signs of stabilization. In May, the National Composite MLS® Home Price Index (HPI) edged down just 0.1% from April, marking the smallest monthly decline since October 2025. This modest movement is consistent with improving market fundamentals, including firmer sale-to-list price ratios and shorter average days on the market. Stabilizing prices represent an important turning point and could help restore buyer confidence after an extended period of uncertainty.

On a year-over-year basis, the non-seasonally adjusted National Composite MLS® HPI was down 4.2% from May 2025. While still negative, this was the smallest annual decline recorded so far in 2026, suggesting that downward price pressures are gradually easing.

Supply conditions also remain balanced. At the end of May, just over 200,000 properties were listed for sale across Canadian MLS® Systems, virtually unchanged from a year earlier and 2.8% below the long-term average for this time of year.

Taken together, moderating price declines, stable listings, and inventory levels near historical norms suggest that housing market conditions are becoming less challenging for both buyers and sellers. As confidence improves and borrowing costs continue to ease, sales activity could strengthen further in the second half of the year.

Bottom Line

Potential homebuyers faced a challenging backdrop in May as oil prices and interest rates moved higher. Conditions appear more favourable heading into June. News that the Strait of Hormuz is expected to reopen, combined with falling oil prices and easing bond yields, should provide support for housing activity. If a broader agreement between the United States and Iran is reached in the coming weeks, oil prices could decline further, reducing inflation concerns and removing an important headwind for home sales.

The Bank of Canada’s next policy decision is scheduled for July 15. Before then, policymakers will receive several key economic reports, including the May Consumer Price Index (CPI) data and the May Labour Force Survey. Assuming geopolitical tensions continue to ease and energy markets stabilize, the Bank is likely to continue looking through temporary price pressures rather than responding to short-term fluctuations in inflation.

Inflation remains the key risk. Recent U.S. inflation data came in stronger than expected, raising concerns that price pressures could prove more persistent than anticipated. If upcoming Canadian CPI data were to show a similar acceleration, the Bank of Canada would have to consider whether current policy settings remain sufficiently restrictive. While weakness in the labour market and soft housing activity argue against additional tightening, it might be considered, but is likely to be dismissed.

Globally, central banks remain divided. Japan, Norway, and Australia have recently raised interest rates, while the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Canada all cut rates during 2025 and have remained on hold so far this year.

The minutes from the Bank of Canada’s April 29 meeting underscore the Governing Council’s concern about inflation. Policymakers seriously debated the possibility of a rate hike before ultimately deciding to leave rates unchanged. The close nature of that decision highlights the Bank’s continued vigilance and suggests that inflation developments will remain one primary driver of monetary policy in the months ahead. The other driver is economic weakness, which will likely keep the central bank on hold for the remainder of this year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Bank of Canada Holds Policy Rate Steady

Today, the Bank of Canada once again held the policy rate at 2.25%. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. With inflation hovering at 2.8% and core inflation falling to 2.0% (as of April data), the Governing Council sees the current overnight rate as appropriate, as the Bank continues to look through the inflationary impact of the war in Iran. The war is in its fourth month, and oil prices and interest rates have risen considerably as a result. The war is disrupting supply chains, weakening economic activity and pushing up inflation. At the same time, the US administration continues to propose new tariffs, and the future of CUSMA remains uncertain.

CUSMA negotiations are underway, but they are unlikely to go on beyond the July 1 mandatory date for the formal review of the pact required by the treaty. On that date, the U.S., Canada, and Mexico are each supposed to declare whether they want to renew the deal for another 16 years (out to 2036), renegotiate it, or decline to renew. The three countries are set to miss the July 1 renewal milestone, with negotiations expected to stretch on for months or potentially years. Missing the date does not kill the deal. If the three don’t agree to a full 16-year extension, the agreement stays in force and shifts into a mechanism of rolling annual reviews that can continue for up to a decade. The treaty doesn’t formally expire until July 1, 2036, unless a party withdraws entirely. US Trade Representative Jamieson Greer said that on July 1, “I don’t think we’re going to renew it outright, but we’ll engage in the separate negotiations” — explicitly signalling the date is a starting point, not a hard conclusion. Dominic LeBlanc, the minister responsible for US trade, met with Greer in Washington and afterward suggested that July 1 “shouldn’t be seen as a crucial date.” Mexican and US officials say the scope and complexity of the issues — auto rules of origin, the 50% Section 232 steel/aluminum tariffs, and other disputes — make resolution by July 1 unlikely.

While first-quarter GDP growth in Canada showed a small contraction, economic growth has been solid in the US, boosted by consumption and AI-related investment. In the euro area, growth is subdued, with higher energy prices weighing on activity. China’s economic growth continues to be supported by strong exports, while oil imports have slowed substantially. Oil demand destruction is evident as China has chosen to limit energy use and draw down inventories.

Financial conditions in Canada have eased since the April Monetary Policy Report (MPR). Global equity markets have been buoyant, and bond yields, though volatile, have generally trended higher. The Canadian dollar has weakened against the US dollar and other currencies.

Canada’s economy contracted in the final quarter of last year. It weakened a bit further in Q1, but incoming data suggest that the first-quarter figure was weighed down by the 10% surge in imports, which has already reversed in the newly released April merchandise trade data. The flash estimate for April GDP is a more solid 0.4% quarter-over-quarter level (or 1.6% at an annual rate). The central bank expects growth to rebound in Q2, but even so, the economy is expected to remain in excess supply.

As expected, Canadian CPI inflation rose to 2.8% in April. Measures of core inflation declined to about 2%, and the share of CPI components growing above 3% is close to its historical average. Food price inflation moderated but remains high, and shelter inflation continued to slow. With global oil prices still elevated—roughly $10 per barrel above our April MPR assumptions—total inflation is expected to hover around 3% in the near term before gradually easing towards 2%.

In other news, the US CPI inflation report for May was released this morning:

• US inflation accelerated again in May as the war in Iran pushed up energy prices, outpacing wages for a second straight month. The US consumer price index climbed 4.2% from a year earlier, the most since early 2023.
• Core CPI, which excludes food and energy, increased 0.2% from April, a touch below expectations and taking some of the sting out of the Fed debate.
• The energy index rose 3.9% in May, accounting for over 60% of the monthly all-items increase.
• But other categories saw slower gains or outright declines: Grocery prices rose 0.1%, while transportation services, health insurance and new vehicle prices fell.
• The breadth of price increases also declined, providing another sign that inflation has likely peaked.
• The S&P 500 opened lower while Treasuries and the dollar wavered on the news.

Overall, today’s US CPI report sent a clear signal that consumers are pulling back on nonessential spending, pushing back against businesses’ attempts to raise prices. This should ease fears of Fed rate hikes following the blowout May payrolls report. Bloomberg News suggests that they still expect the Fed to hold rates steady at the June 12 meeting and to cut the overnight fed funds rate by 25 basis points in the fourth quarter of this year.

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty and a record oil price shock. Ottawa, too, has taken actions to reduce the burden of higher prices on Canadians by temporarily eliminating the excise tax on oil. PM Carney is also working to diversify Canada’s trade away from the US, a strategy that has thus far been remarkably successful. As the charts below show, Canadian export diversification is gaining momentum. In addition, goods imports are also shifting away from the US to the rest of the world.

We continue to maintain the view that the Bank of Canada will keep rates steady this year. If inflation broadens and accelerates, rate hikes are possible, but that is not our baseline forecast. The Bank of Canada will be reluctant to tighten into housing market weakness. While housing activity strengthened in May, momentum is muted, and affordability improvements are likely to taper off in the coming months as trade tensions and the war keep oil prices and interest rates elevated.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

So Much For Recession Worries, The May Jobs Report For Canada Was A Blockbuster

Canadian employment surged 87,800 in May, the strongest reading since 2024. Today’s Labour Market Survey dispels recession concerns, but leaves the Bank of Canada open to a possible rate hike later this year or next if inflation remains troubling. The Canadian economy continues to show resilience in the face of tariffs and oil price increases.

The headline job gain, combined with a 3,800 rise in the size of the labour force, drove the unemployment rate down three basis points to 6.6%. The jobless rate is still in the 6.5%- 7.0% range seen over the past year. The employment rate rose 0.2 percentage points to 60.7%.

The report’s details were also stronger than expected. The unemployment rate for youth declined 0.9 percentage points to 13.4%. The rate also fell among core-aged women (-0.4 percentage points to 5.5%) and core-aged men (-0.4 percentage points to 5.7%).

Employment increased in several industries, most notably in construction (+27,000; +1.7%), information, culture and recreation (+19,000; +2.3%), transportation and warehousing (+19,000; +1.7%) and accommodation and food services (+17,000; +1.5%). On the other hand, employment decreased in wholesale and retail trade (-35,000; -1.2%).

Hiring also rose in manufacturing in May (+15,000; +0.8%). Hiring in this industry was little changed compared with 12 months earlier, but down 44,000 (-2.3%) from January 2025. The manufacturing sector has faced heightened economic uncertainty since early 2025, driven by U.S. tariff policies.

Employment rose in Ontario (+42,000; +0.5%), British Columbia (+25,000; +0.9%), Alberta (+14,000; +0.5%), and Prince Edward Island (+1,200; +1.3%), while it fell in Saskatchewan (-6,100; -1.0%).

Average hourly wages among employees increased 3.0% (+$1.10 to $37.24) on a year-over-year basis in May, following growth of 4.5% in April (not seasonally adjusted).

Hiring gains in May were the first significant job growth since November 2025. The increase in May follows a net decline of 112,000 (-0.5%) over the first four months of 2026. On a year-over-year basis, employment was up by 147,000 (+0.7%) in May.

The number of people working full-time rose by 154,000 (+0.9%) in May. The increase in the month offsets a downward trend observed from January to April, in which the number of full-time workers fell by 156,000 (-0.9%). In May, part-time employment decreased by 66,000 (-1.7%).

Employment rose among employees in both the private sector (+56,000; +0.4%) and the public sector (+20,000; +0.4%) in May. The number of self-employed workers was little changed.

Since the spring of 2024, the unemployment rate has remained above its average (6.0%) observed from 2017 to 2019, prior to the COVID-19 pandemic. The unemployment rate reached a recent peak of 7.1% in August and September 2025.

As employment picked up in May, the job-finding rate ticked up, with just over one-quarter (26.3%) of people who were unemployed in April found work in May. This was up 3.7 percentage points compared with the same period last year but remained below the pre-pandemic average for the corresponding months from 2017 to 2019 (31.5%). At the same time, the layoff rate remained relatively stable at 0.6%, little changed compared with a year earlier and in line with the pre-pandemic average (not seasonally adjusted).

The unemployment rate in the Toronto census metropolitan area fell 1.1 percentage points to 6.8% in May, the lowest level since November 2023. The rate in May 2026 was down from a recent peak of 9.0% in May 2025 and July 2025. Recent declines in Toronto have brought its unemployment rate closer to the rate observed in Montréal (6.5%) and Vancouver (6.4%) in May 2026.

The jobless rate also fell in Montréal (-1.2 percentage points) in May, largely offsetting the increase recorded in the previous month. In Vancouver, the unemployment rate decreased 0.6 percentage points to 6.4%. In both Montréal and Vancouver, the unemployment rate in May was virtually unchanged year over year.

In separate news, US hiring also surged in May, boosting bets on a Fed rate hike. Stocks and bonds in Canada and the US sold off on the news. US job growth topped all forecasts in May, and the unemployment rate held steady at 4.3%, offering the clearest sign yet that the labour market may be breaking out of a prolonged period of lacklustre hiring.

Nonfarm payrolls increased 172,000 last month, and hiring in March and April was stronger than previously reported, according to Bureau of Labour Statistics data out Friday. Taken together, the figures marked the strongest three-month advance in more than two years.

Bottom Line

These blockbuster jobs reports, accompanied by inflation risk stemming from high tariffs and the war in Iran blocking the Strait of Hormuz, are troubling for both stocks and bonds.

The relative weakness of the Canadian labour market will discourage the Bank of Canada from tightening monetary policy too soon. To be sure, inflation remains a risk as higher energy costs become embedded in the price of a wide array of goods and services. The Bank will be reluctant to respond with rate hikes over the next few announcement dates.

Trade negotiations are accelerating as the future of CUSMA is determined. It is hard to imagine the Bank of Canada tightening in the face of such a weak housing market. Early evidence suggests housing activity picked up in May, but the sector remains vulnerable to rising interest rates. Although both the Fed and the BoC have remained on the sidelines so far this year, market-driven interest rates have risen considerably owing to the sharp rise in inflation pressures. Housing is a much larger component of economic activity in Canada than in the US. The Bank of Canada, therefore, will be particularly leery of tightening monetary policy. We hold to the view that central bank rate hikes in Canada and the US are unlikely this year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Strengthened in April As The Month Progressed

The number of home sales recorded on Canadian MLS® Systems was up 0.7% month over month in April 2026. According to Shaun Cathcart, Senior Economist with the Canadian Real Estate Association (CREA), “While home sales were up only modestly from March to April, the small increase reflected a slow start to the month with a stronger handoff into May, alongside falling days on the market and stabilizing prices. This latest bout of global economic uncertainty and higher mortgage rates suggests the previously expected rebound in housing markets this year will remain muted. Still, it does not mean there will be no upward momentum at all.” Indeed, housing activity appears to be improving despite the war in Iran.

New Listings

New listings jumped 4.1% month-over-month in April, marking the traditional starting point for the spring market.

With the gain in new supply outpacing sales within the month of April, the national sales-to-new listings ratio eased to 45.6% compared to 47.1% in March. That said, this could reflect a timing issue between when properties are listed and when they eventually sell. The long-term average for the national sales-to-new listings ratio is 54.8%, with readings generally between 45% and 65% that are consistent with balanced housing market conditions.

There were 187,647 properties listed for sale on all Canadian MLS® Systems at the end of April 2026, up 2.2% from a year earlier but 6.1% below the long-term average for that time of the year.

There were 5.2 months of inventory nationwide at the end of April 2026, up slightly from February and March, driven by the influx of new spring listings. This remains very close to the long-term average for the five-month measure. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

In April, the National Composite MLS® Home Price Index (HPI) experienced a slight decrease of just 0.1% on a month-over-month basis, marking the smallest decline since October 2025. This trend corresponds with tightening sale-to-list price ratios and a reduction in days on the market in recent months. Price stabilization is a crucial milestone that could encourage buyers to re-enter the market in greater numbers.

On a year-over-year basis, the non-seasonally adjusted National Composite MLS® HPI dropped by 4.2% compared to April 2025, which is the smallest decline recorded in 2026 so far.

Bottom Line

With geopolitical tensions mounting and the tenuous ceasefire in Iran, some potential homebuyers have postponed their purchase decisions. While there remains considerable pent-up demand, and home prices in many regions have fallen sharply, especially in Ontario, which was hardest hit by the tariffs last year, along with the ongoing condo supply glut. These issues are unlikely to be resolved in the near term, so housing market weakness will remain a drag on overall economic activity.

Compounding these concerns is the surge in oil prices. Gasoline prices–a very visible component of consumer spending–have skyrocketed, causing supply disruptions in nitrogen fertilizer, plastics, aluminum and helium. Price pressures will no doubt mount, leading central banks to be concerned about potential stagflation.

Next Monday, we will see the CPI data for March. At this point, the Bank of Canada is likely to continue to “look through” the price pressures, hoping the war will end very soon.

Following the worse-than-expected US inflation data, the Canadian CPI for April will be released on May 29. If it confirms the 3.8% y/y US inflation, the Bank of Canada will seriously consider a 25 bps rate hike despite weakness in the labour market. The Bank is mindful of the negative impact of higher rates on already weak housing activity; this reduces the chances of a rate hike, but it cannot be ruled out. Among major advanced economies, central banks have already hiked interest rates in Japan, Norway and Australia. In contrast, the Fed, ECB, Bank of England, and Bank of Canada all cut rates in 2025 and have been on hold so far this year.

Judging from the recently released minutes of the last BoC meeting, the Governing Council seriously considered a rate hike at their April 29th meeting. It was a close call then, a harbinger of the central bank’s inflation concerns.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca