If one number has shaped the lives of Canadian homeowners over the past six years, it’s the Bank of Canada’s overnight rate.
At 0.25%, it opened the floodgates to the market.
At 5.00%, it brought everything to a crawl.
And now, as the Bank begins to ease its stance in 2025, that same number is quietly rewriting the rules again — this time, toward balance.
Interest rates haven’t just changed what people can afford. They’ve changed how Canadians feel about buying, selling, and even staying put. Here’s how the journey unfolded — and what it means as the next chapter begins.
Phase 1: When Money Was Almost Free (2019–2021)
Before the pandemic, interest rates were steady and predictable — hovering near historic lows. But in 2020, as COVID-19 brought the economy to a standstill, the Bank of Canada slashed its rate to 0.25%, the lowest in history.
That decision triggered one of the most dramatic housing booms Canada has ever seen.
- Borrowing costs collapsed. Variable mortgage rates dropped below 2%; five-year fixed hovered near 3%.
- Affordability surged on paper. Suddenly, homes that seemed out of reach looked possible.
- The demand exploded. Remote work, low rates, and a fear of missing out collided — and by early 2022, home prices had jumped over 40% nationally.
It was the age of easy credit and overnight bidding wars — a market driven less by logic and more by adrenaline.
Phase 2: The Reality Check (2022–2024)
Then came inflation.
What started as a temporary concern became a global shock. The Bank of Canada reacted swiftly, launching one of the fastest rate-hike cycles in modern history — from 0.25% to 5.00% in just sixteen months.
For the housing market, it felt like slamming on the brakes.
- Mortgage rates doubled. Variable and fixed rates both pushed past 6–7%.
- Qualifying became harder. The stress test meant buyers had to prove they could afford even higher payments.
- The “lock-in effect” took hold. Homeowners with ultra-low pandemic mortgages refused to sell, scared to re-enter at double the cost.
Sales dropped more than 30% from their peak. The frenzy was over, replaced by hesitation. The country’s collective obsession with real estate gave way to something new: rate anxiety.
And for millions of Canadians facing renewals in 2025 and 2026 — roughly 60% of all outstanding mortgages — that anxiety became personal.
Phase 3: The Reset Begins (2025 and beyond)
Now, after two years of steep payments and economic slowdown, the cycle is turning again. Inflation is cooling, and the Bank of Canada has begun lowering rates for the first time since 2020.
It’s not a return to the wild days of pandemic lending — and it shouldn’t be. What we’re seeing instead is a measured re-balancing.
- Pent-Up Demand Finds Its Voice
Buyers who’ve been waiting on the sidelines — first-timers, up-sizers, and those simply priced out by higher payments — are finally ready to move again. Lower rates mean easier qualification and smaller monthly costs, and that combination is already starting to stir activity.
Industry forecasts point to a 6% rebound in national sales by 2026 — not a boom, but a healthy return toward normal.
- Prices: From Whiplash to Stability
The days of double-digit appreciation are gone. Expect modest, steady growth instead — enough to restore confidence without inflating another bubble. Expensive markets like Toronto and Vancouver will likely see the first rebound in sales, while regions like Calgary, Edmonton, and Halifax may continue to show solid value retention.
- More Listings, More Balance
As rates ease, homeowners who’ve been “locked in” will start to list again, slowly increasing inventory. Combined with the ongoing mortgage renewal wave, the next two years should bring a welcome rise in choice — and, for buyers, more negotiating power than at any point since 2020.
From Whiplash to Stability
The story of Canada’s housing market is really the story of its interest rates — and how deeply they shape our sense of possibility.
At 0.25%, the market lost its brakes.
At 5.00%, it lost its nerve.
Now, somewhere in between, it’s finding its footing again.
For buyers, this isn’t about chasing the lowest rate or timing the perfect entry. It’s about understanding the new normal — a market guided less by fear or frenzy, and more by patience, planning, and perspective.
Thinking about buying or selling in today’s market? Our team can help you navigate what these new rate changes mean for your goals. Reach out to your Cityscape agent or book a quick strategy call — we’ll help you move with confidence
