Mortgage Rates in Canada Are Stable, but the Economy Is Flashing Warning Signs
Mortgage Rates in Canada Are Stable, but the Economy Is Flashing Warning Signs
From a Canadian mortgage rates perspective, things have been unusually calm. Fixed mortgage rates in Canada haven’t moved much, variable mortgage rate discounts are holding steady, and Government of Canada bond yields remain stuck in a tight range.
On the surface, that feels reassuring.
But when you zoom out and look at the broader economic data, the picture becomes far less comforting, and it raises important questions about the Bank of Canada interest rate outlook and what it means for borrowers in 2026 and beyond.
Why the Bank of Canada Is Holding Rates Steady
The Bank of Canada is currently holding its policy rate at 2.25%, a level it considers near the lower end of its neutral range. In theory, that means interest rates are neither stimulating nor restricting the economy.
The challenge is that much of today’s economic data suggests the economy could use some support.
Governor Tiff Macklem has pointed to U.S. tariffs as a major force reshaping Canada’s economy, particularly in the manufacturing sector. He’s acknowledged that while these structural changes may create long-term benefits, transitions that happen faster than expected tend to be painful.
Despite that, the Bank has been reluctant to continue cutting rates, arguing that lowering rates during weak growth could reignite inflation if the slowdown is tied to reduced productive capacity rather than weaker demand.
That explanation becomes harder to reconcile when you look at the labour market.
Canada’s Jobs Market Is Softening
According to Statistics Canada, the economy lost approximately 25,000 jobs in January, a sharp miss versus expectations. While the unemployment rate technically fell from 6.8% to 6.5%, that improvement came largely because 119,000 Canadians exited the labour force, not because hiring surged.
Source: Reuters coverage of the January labour report
https://www.reuters.com/world/americas/canada-loses-24800-jobs-unemployment-rate-dips-65-2026-02-06/
Employment quality improved modestly, with some full-time job gains offsetting part-time losses. However, the regional breakdown matters. Ontario accounted for the majority of job losses, and manufacturing was hit hardest, reinforcing concerns about trade exposure and industrial weakness.
Meanwhile, average wage growth cooled to roughly 3.3% year-over-year, continuing a gradual downward trend.
Source: Reuters, wage growth data
https://www.reuters.com/world/americas/canada-loses-24800-jobs-unemployment-rate-dips-65-2026-02-06/
Inflation Pressures Have Cooled
Despite the Bank’s caution, inflation no longer looks like the primary threat it once was.
According to Statistics Canada, headline inflation and key core inflation measures are now back within the Bank of Canada’s 1%–3% target range, and shelter inflation is continuing to cool.
Source: Statistics Canada CPI release
https://www150.statcan.gc.ca/n1/daily-quotidien/260119/dq260119a-eng.htm
While wage growth remains slightly higher than headline inflation, labour-market slack is clearly increasing.
Economist David Rosenberg recently noted that Canada now has roughly three unemployed workers for every job opening, even before accounting for people who have stopped actively searching for work.
Source: National Bank of Canada economic commentary
https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/mensuel/monthly-economic-monitor-canada.pdf
That’s not an environment where wage-driven inflation typically accelerates.
A Familiar Playbook, but a Different Response
During COVID, Canada’s economic slowdown wasn’t driven by weak demand. It was caused by a sudden collapse in productive capacity. At the time, the Bank of Canada responded aggressively, cutting rates to near zero and deploying extraordinary stimulus.
Former Governor Stephen Poloz summed it up well: in a crisis, a firefighter is never criticized for using too much water.
Today’s situation isn’t identical, but there are similarities. Structural shifts, persistent headwinds, and limited policy tools remain part of the equation.
The difference this time is hesitation.
Growth Is Slowing, Not Accelerating
The Bank of Canada is forecasting near stall-speed growth over the next few years, and even that modest outlook may be optimistic. Recent GDP data has already come in below expectations.
Retail sales have shown ongoing volatility, with multiple monthly declines over the past year, signalling weaker consumer momentum.
Source: TD Economics retail sales analysis
https://economics.td.com/ca-retail-sales
Housing activity also remains subdued in major markets. Toronto home sales recently fell at the fastest pace in nearly a year, reflecting affordability constraints and buyer hesitation.
Source: Reuters housing market coverage
https://www.reuters.com/world/americas/toronto-home-sales-fall-most-11-months-economic-uncertainty-weighs-2026-02-04/
Rate-sensitive sectors haven’t responded meaningfully to previous rate cuts, raising questions about how effective current policy settings really are.
If monetary policy is meant to be forward-looking, it’s fair to question whether standing still is the right call.
What This Means for Mortgage Borrowers
Fixed mortgage rates in Canada are sitting close to their historical norms. Three- and five-year fixed terms continue to dominate borrower choices, and as long as the spread between them remains narrow, the five-year fixed generally offers better overall value.
With bond yields still showing a short-term upward bias, buyers who are actively shopping would be well served by securing a fixed-rate pre-approval, particularly in higher-priced markets like Vancouver and the Lower Mainland.
That said, I still expect variable-rate mortgages to result in the lowest total borrowing cost over a full five-year term. That outlook assumes additional Bank of Canada rate cuts, which runs somewhat counter to bond markets currently pricing in the risk of a rate hike in late 2026.
Variable rates aren’t a fit for everyone. Borrowers considering this route need enough financial flexibility to manage potential swings in payments and interest costs.
Final Thought
With inflation cooling, economic growth slowing, and labour markets softening, the case for additional Bank of Canada rate cuts appears to be building, not fading.
For now, the Bank seems content to wait and see.
Thinking About a Mortgage or Renewal?
Whether you’re buying, renewing, refinancing, or just trying to understand how interest rates affect your options, getting clear advice matters more than ever.
If you’d like a second opinion or a personalized breakdown of today’s mortgage options, feel free to reach out.
Rob Skoko
Mortgage Broker | MAXIMUM Mortgage Solutions
📍 Vancouver, BC
📞 604-771-4085
📧 rob@skoko.ca
🌐 www.skokomortgages.ca
No pressure. Just straightforward advice tailored to your situation
