The Bank of Canada held its key interest rate at 2.25% on Sept. 2, a seventh consecutive hold since the last cut in October 2025, according to the central bank’s own rate schedule and a decision recap from TD Economics. But Canadian borrowers have not gotten a break from steady policy: fixed mortgage rates climbed anyway on a bond market move, and Canada Mortgage and Housing Corp. data released the same month show homebuilding kept slipping.
TD senior economist Marc Ercolao said stronger than expected second-quarter economic growth had reduced the case for a rate cut, while inflation pressures remained contained enough to rule out a hike. In its statement, reported by TD Stories, the bank pointed to elevated energy prices tied to conflict in the Middle East and to new U.S. tariffs and Canadian countermeasures following a breakdown in trade talks as sources of “fluid” uncertainty. Ercolao said TD expects the bank “to stay on the sidelines and hold the rate through the remainder of the year.” The Bank of Canada’s next scheduled announcement is Oct. 28.
Fixed mortgage rates do not move with the overnight rate. They track Government of Canada bond yields, and those went up. The five-year bond yield rose roughly a quarter of a percentage point in a single week in September amid a global bond selloff, Canadian Mortgage Trends reported. Major banks responded by raising fixed rates 10 to 20 basis points, and some lenders withdrew discretionary discounts of up to 40 basis points on top of that, a combined increase north of 60 basis points for some borrowers.
Halifax-based mortgage broker Clinton Wilkins told Canadian Mortgage Trends that lenders had been “advancing mortgages at a loss” to hold onto market share and called it “not a sustainable game.” Broker Ron Butler warned that headline rate-sheet changes understate the real move: “the published rate changes 20 bps, but if you remove discretion, and some of those are 40 bps changes.” Mortgage planner David Larock cautioned buyers locking in now against betting on a quick reversal, noting a shock like a reopened Strait of Hormuz could leave a five-year borrower “stuck with that rate” while the market moves on.
The rate backdrop lines up with a construction sector that is still cooling. CMHC’s August data, released Sept. 16, put the seasonally adjusted annual rate of housing starts at 229,046 units, essentially flat from July’s 229,360. The more telling trend measure, the six-month moving average CMHC uses to smooth monthly swings, fell 1.3% to 244,149 units. Actual urban starts in centres of 10,000 people or more totalled 17,691 in August, down 2% from 18,112 a year earlier, with year-to-date urban starts off 4% from 2025. “Housing starts continued to trend slightly down in August, as modest gains in Quebec and Alberta only partially offset the decline in other provinces, most notably, Ontario,” said Kevin Hughes, CMHC’s deputy chief economist.
That trend line is well short of what CMHC itself says the country needs. Its Fall 2026 Housing Supply Report, released Sept. 10, estimated Canada needs 4.17 million to 4.69 million additional homes by 2036, a pace of 417,000 to 469,000 units a year, roughly double the current six-month trend. “New construction is slowing faster than demand,” said Aled ab Iorwerth, another CMHC deputy chief economist, warning that “Canada underbuilds during this softer market and finds itself further short of housing when demand strengthens again.”
The resale market, meanwhile, is holding roughly steady at lower volume. The Canadian Real Estate Association’s national figures for August, released Sept. 15, showed home sales down 6.9% year over year, with the MLS Home Price Index off 3% from a year earlier even as the national average sale price ticked up 0.6% to $668,219. New listings rose 3.3% month over month, pushing the sales-to-new-listings ratio to 49.1% and inventory to 4.8 months of supply. “Sales activity and price trends were largely unchanged for a fourth consecutive month in August,” said CREA senior economist Shaun Cathcart, adding that “what has changed is the broader economic environment.”
