Over the last two years, Canada’s interest rate landscape has shifted dramatically — from the peak of the fastest tightening cycle in decades to a more balanced, cautious stance. For real estate markets like Vancouver and Toronto, where affordability and borrowing costs shape nearly every conversation, these rate movements have had outsized effects.

With the Bank of Canada holding the overnight rate at 2.25% in December 2025, buyers, sellers, and investors are asking the same question: Where are we headed in 2026?

This article breaks down the last two years of rate changes and explains what they mean specifically for Vancouver and Toronto.

The Road From Peak Rates to Easing (2023–2024)

Late 2023: The Peak

By the end of 2023, the Bank of Canada had pushed the overnight rate to 5.00% to tame inflation. This was the highest level in over two decades.

Early 2024: Holding Pattern

Through early 2024, the Bank held rates steady at 5.00% while inflation gradually cooled.

Mid–Late 2024: The First Cuts

The easing cycle began in June 2024:

• June 2024: 5.00% → 4.75%
• July 2024: 4.75% → 4.50%
• September 2024: 4.50% → 4.25%
• October 2024: 4.25% → 3.75%
• December 2024: 3.75% → 3.25%

By the end of 2024, rates had fallen 175 basis points, giving relief to variable‑rate borrowers and stabilizing fixed‑rate mortgage pricing.

2025: A Year of Measured Easing

Early 2025: Continued Cuts

• January 2025: 3.25% → 3.00%
• March 2025: 3.00% → 2.75%

Mid–Late 2025: Slower, More Cautious Cuts

• September 2025: 2.75% → 2.50%
• October 2025: 2.50% → 2.25%

December 2025 Announcement

The Bank of Canada held the overnight rate at 2.25%, calling it “about the right level” given:

• Inflation near the 2% target
• A resilient labour market
• Slowing but stable economic growth
• Rising trade uncertainty heading into the 2026 CUSMA review

What This Meant for Vancouver & Toronto (2024–2025)

Vancouver, BC

Housing Market Impact

• Vancouver’s market responded quickly to rate cuts.
• Detached homes remained expensive, but condos and townhomes saw renewed demand as borrowing costs eased.
• Investor activity increased slightly, especially in pre‑

Affordability

• Even with lower rates, Vancouver remained one of the least affordable markets in North America.
• Rate cuts helped monthly payments, but prices stayed elevated due to limited supply and strong immigration.

Buyer Behaviour

• Many buyers who sat out during the 2023–2024 peak re‑entered the market in late 2024 and early 2025.
• Variable‑rate borrowers finally saw payment relief after two years of pressure

Toronto, ON

Housing Market Impact

• • Toronto’s market saw a stronger rebound than Vancouver’s due to deeper price corrections in 2023–2024.
  • Rate cuts revived activity in the 905 region (Mississauga, Brampton, Durham).

Affordability

• • Toronto remained stretched, but the easing cycle improved qualification rates and boosted first‑time buyer activity.

Investor Behaviour

• • Investors returned more aggressively than in Vancouver, especially in the condo market where rents continued rising.

What to Expect in 2026

The Big Wild Card: CUSMA Review

The 2026 renegotiation of the Canada–U.S.–Mexico Agreement is expected to be the single biggest economic risk of the year.

Potential impacts include:

• Tariffs on autos, steel, lumber, and agriculture
• Supply chain disruptions
• Business investment hesitation
• Export‑driven sector volatility

This uncertainty will heavily influence the Bank of Canada’s decisions.

Interest Rate Outlook for 2026

Base Case: A Long Hold at 2.25%

Most economists expect the Bank of Canada to hold rates steady for much of 2026, unless:

• Growth weakens significantly
• Trade tensions escalate
• Inflation drifts away from target

Possible Scenarios

Scenario A: Mild Cuts (Most Likely)

• • If the economy softens due to trade uncertainty:
  • Rates could fall to 1.75%–2.00% by late 2026.

Scenario B: Extended Hold

• • If inflation stays near 2% and growth remains stable:
  • Rates stay at 2.25% all year.

Scenario C: Small Hikes (Least Likely)

• • If tariffs push prices up or the labour market overheats:
  • Rates could rise back toward 2.50%–2.75%.

What This Means for Vancouver & Toronto in 2026

Vancouver

• Expect steady demand, especially in condos and townhomes.
• Detached homes remain out of reach for many buyers.
• Investors may stay cautious due to BC’s tax environment.
• If rates hold steady, price growth will be moderate, not explosive.

Toronto

• Toronto may see stronger sales growth than Vancouver due to deeper price corrections in prior years.
• Condo investors will remain active as rents continue rising.
• A stable rate environment could push more first‑time buyers into the market.
• Supply constraints will continue to support prices

Final Thoughts

From 2023 to 2025, Canada moved from peak tightening to a more balanced stance. With the overnight rate now at 2.25%, the Bank of Canada is signaling stability rather than dramatic moves.

For Vancouver and Toronto:

• Affordability will remain a challenge, but stable rates help buyers plan.
• Market activity should improve, especially in the mid‑range and condo segments.
• 2026 will be shaped more by trade policy than by inflation

As we head into 2026, what’s next? Will the Bank of Canada deliver another rate cut or hold steady? And how will Vancouver and Toronto’s real estate markets respond to the shifting economic winds?

 

_{Disclaimer:
The views and opinions expressed in this post are solely my own and based on personal interpretation of publicly available information. This content is not intended as financial advice, investment guidance, or professional recommendation. Please do your own research or consult a qualified advisor before making any financial or real estate decisions.}