Bank of Canada Deliberations Cite Housing Recovery While Holding Rate at 2.25% Through Renewal Season

A Firmer Economy Than the Headlines Suggested

Governing Council met against a backdrop that had been weak for a long stretch. Members noted the Canadian economy had effectively stalled, with no growth between the first quarter of 2025 and the first quarter of 2026, held down by U.S. tariffs and trade-policy uncertainty that kept the economy in excess supply. That is the low base the Bank was working from.

Then the tone changed. More recent indicators showed the economy recovering in the second quarter, with growth broadening beyond consumer and government spending to resumed exports and, notably, housing. According to the Bank's summary of Governing Council deliberations, housing resale activity returned to positive growth in the second quarter after contracting in the previous two, and members expected second-quarter GDP growth to rebound to about 2.5%. Job growth had resumed, and the unemployment rate ticked down to 6.5% in June, though members still judged the labour market soft.

Inflation told a split story. Higher global oil prices — driven by conflict in the Middle East, which pushed the benchmark price to around US$120 per barrel — lifted Canada's headline inflation rate to 3.2% in May. Strip out gasoline, and inflation was 2.2%, with core measures holding near 2%. That decomposition is why the Bank chose not to react mechanically to the energy spike. Members agreed to look through the direct effects of higher oil prices while insisting they would not let those effects become persistent.

The Load-Bearing Judgment

The pivotal line came when members weighed it all together and concluded that "the trade-off facing monetary policy had diminished" — growth was resuming just as inflation was easing, easing the tension that had defined earlier decisions. On that basis, Governing Council judged the current stance appropriate for returning inflation to the 2% target by early 2027.

That confidence was not unanimous, and the Bank did not pretend otherwise. The summary records "a range of views" over whether the GDP rebound would hold beyond the near term. Members flagged real domestic risks: the recovery in housing could stall under the weight of large condo inventories in Toronto and Vancouver, low population growth, and persistent affordability pressure. The forecast, they acknowledged, carries a high degree of uncertainty. For a fuller account of how the Bank reached this decision, see the companion coverage of the reasoning behind the sixth-straight hold.

The Cohort Still Facing a Reset

The reason the July summary matters beyond the day's news is timing. A large wave of mortgages is renewing right now, and many are rolling off pandemic-era terms into a higher-rate world.

Bank of Canada staff analysis found that about 60% of mortgage holders renewing in 2025 and 2026 are expected to see a payment increase. The concentration is what makes it sharp: roughly three-quarters of those seeing increases hold a five-year fixed mortgage, and staff estimated that five-year fixed holders renewing in 2026 face an average payment jump of about 20%. Because five-year fixed products make up around 40% of all mortgages, the strain is landing on one of the most common loan types in the country. Taken together, borrowers facing an increase represent about a third of all mortgage holders by the end of 2026.

Not everyone renewing faces the same shock, and the next twelve months split into distinct groups:

That segmentation comes from the Bank's 2026 Financial Stability Report, which also offers a note of calm against the alarm. Most households that renewed at higher rates in 2025 and early 2026 have managed the increase; lenders have not seen a broad rise in loan losses; and more than 90% of recent renewers qualified at rates below their stress-test rate. The share of mortgage holders more than 60 days behind on an account sat near 1.3%. The pressure is real and concentrated — but it is not, so far, a systemic break.

Reading the Fixed-Rate Side

For those weighing whether to wait, the fixed-rate math is worth understanding plainly. The same Market Participants Survey put the end-2026 forecast for the 5-year Government of Canada bond yield in a tight band — 2.95% at the 25th percentile, 3.15% at the median, and 3.20% at the 75th percentile. That range sits close to prevailing mid-2026 levels and well above the policy rate. In practical terms, the benchmark that sets fixed mortgage rates is not expected to fall far by year-end. Waiting for a materially cheaper fixed renewal, on the current evidence, is a bet against a fairly narrow forecast.