Oh, no.

Remember that cheery news a few weeks ago saying mortgages would soon be 3%. Maybe even sneaking into the high-2s?

Well, forget that. If you’ve been trying to sell your house for the past three months, or happen to run a billion-dollar home construction conglomerate, sit down. We have painful news.

It’s over. In fact, it could be worse than over.

Bay Street economists in recent days have been putting their happy-face forecasts into reverse. The Bank of Canada is done cutting interest rates and may in fact soon be tightening the screws once again, according to one (usually prescient) bank.

As you know, our guys dropped rates a quarter point a month ago, taking the policy marker to 2.25%. But that came with a warning: “For many months, we have been stressing that monetary policy cannot undo the damage caused by tariffs,” said Governor Tiff. “It cannot restore the economy to its pre-tariff path.”

That means the central bank thinks inflation is lurking, that the orange guy’s tariffs will continue to do damage, and after the feds unveiled a spendy, stimulating and deficit-rich budget, it has no appetite to throw more gas on the fire. Whether that helps sell your house, or not.

Most economists take Macklem’s words to mean the CB will stay on the sidelines for all of 2026. But at Scotia they see increases coming. Yes, the nightmare scenario for residential real estate, already in the ditch.

Scotiabank economist Jean- François Perrault states the rate-cutting cycle has abruptly ended. The Bank of Canada, he figures, will deliver two quarter0-point increases in the second half of 2026. That could take mortgages into the higher-4% range, and likely throw the posted rate of most banks above 5% for five-year fixed loans. Ouch.

“Inflation risks are serious enough that the Bank of Canada is done cutting interest rates,” he says. “We expect Governor Macklem and his colleagues will raise the policy rate by half a percentage point in the second half of 2026, reversing the most recent cuts.”

Why? The implications for real estate – and new home construction, already circling the drain – could be epic.

The bank cites inflation, as mentioned, and says the CB’s recent cuts were temporary moves to stabilize the economy. Once that happens, with slow growth resuming and Ottawa’s massive nation-building infrastructure projects under way, monetary policy will reverse.

Not everyone agrees. Most economists think rates will stay stuck about where they are now.

Source: Canadian Mortgage Trends

TD, Royal and Penguin Bank economics departments are putting their money on the CB rate remaining at 2.25% through all of next year. BeeMo still sees room for another small cut. But everyone is mindful of what Tiff Macklem has been saying: “If the economy evolves roughly in line with [our] outlook, Governing Council sees the current policy rate at about the right level.”

At RBC, this means the cuts are done. “Sticky underlying inflation due to resilient domestic demand is why we think the Bank of Canada will have a hard time justifying cutting the overnight rate from 2.25% to outright stimulative levels.”

The wild card might be the Fed.

US interest rates are higher than ours, and inflation there is more virulent. Trump’s tariffs are having a growing impact on consumer prices as people face the highest import taxes since the 1930s. The president’s economic policy is an abject failure, now becoming more apparent to Americans and the world. But the guy will likely try to force rates lower in order to paper over the damage. In the Spring, Trump is able to replace the Fed chair. Expect turmoil on Wall Street.

Well, the best advice is probably to take what Re/Max just forecast – a real estate revival in 2026 – and expect something else.

About the picture: “My partner and I are circling the air like vultures looking for a suitable housing opportunity,” writes Rob, in Kitchener-Waterloo. “We’ve done our calculations and, compared with renting, we’ve identified the break-event point for purchasing a house on a total cost of ownership basis. That break-even point is still far below the current asking prices, but if the other shoe drops on the economy, it could be within our reach. In the meantime, here is a picture of Brie and Clifford, on the look-out and ready to bark at any nearby pedestrians.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/11/27/oh-no-3/