Bank of Canada Holds Rates as Home Buyers Wait on the Sidelines

The Bank of Canada announced its second rate hold of the year, keeping the overnight lending rate steady at 2.75%. With the Canadian economy facing trade risks and ongoing uncertainty around tariff policies, the Bank had several factors to consider in making today’s decision.

The hold follows a stronger-than-expected GDP increase reported by StatCan on Friday. Meanwhile, core inflation data rose in April, and the unemployment rate has been steadily climbing from 6.6% in January to 6.9% in April, adding to the complexity of the economic outlook.

However, a recent Reuters poll of 26 economists forecasts at least two more BoC rate cuts in 2025. 

Borrowing costs have significantly improved from last year. In June 2024, the Bank of Canada announced its first rate cut in more than two years. Since then, the overnight lending rate has lowered from 4.75% to 2.75%, a massive change in just one year. Despite this, home buyer confidence has not returned. 

“Demand for Canadian real estate continues to chill, with April sales activity reminiscent of the early days of the pandemic. A combination of economic uncertainty and steep affordability has kept buyers on the sidelines, and will do so until borrowing costs fall further,” says Penelope Graham, mortgage expert at Ratehub.ca

April data from the Canadian Real Estate Association (CREA) showed that year-over-year home sales fell by over 10% in Vancouver, Toronto, Calgary, Edmonton, Saskatoon, and Hamilton-Burlington. However, a few major markets are bucking the trend. The Quebec CMA saw a notable 12.1% year-over-year increase in sales, while sales in the Montreal CMA rose by 10.4%. 

Low borrowing costs haven’t been enough to offset high home prices, highlighting another reason why many buyers have been hesitant to enter the market this year. 

In a recent Zoocasa survey, ‘If you were a home buyer in today’s market, what would make you feel more confident about affording a home?’ the top response was cheaper housing options — ahead of higher income, lower interest rates, and lower property taxes. 

In addition, a BMO survey found that 50% of respondents believe owning a home is less attainable now than it was 12 months ago. 

Going forward, lower interest rates may help nudge some prospective buyers off the sidelines, but it will likely take more to restore affordability. Fortunately, the Government of Canada recently introduced a new GST rebate that eliminates the GST on new-build homes for first-time buyers purchasing a home priced up to $1 million. 

After continuously falling from December 2024 to April 2025, the average 5-year fixed rate inched up in May. The average 5-year fixed rate sat at 3.74% in April but rose to 3.84% in May, according to Ratehub.ca. 

Graham explains that bond yields have stayed elevated following a May rebound, driven by lingering investor caution around U.S.-backed debt. “Yields have also been less reactive to positive economic news, such as rolled-back tariffs and new trade agreements. This has pushed the Government of Canada five-year bond yield – which lenders use when pricing their five-year fixed rate mortgage products – to the upper 2.8 – 2.9% range, putting growing upward pressure on fixed rates.”

Given the current economic uncertainty, locking in a mortgage pre-approval is a smart move for buyers looking to stay ahead of potential rate changes. It also provides peace of mind and a clearer understanding of your budget while searching for a home.

Wondering what this could mean for your plans to buy and sell? A local agent can walk you through your options. Give us a call today!