As 2025 winds down, the Bank of Canada holds the policy rate at 2.25%

Following a stronger than expected November jobs report, the Bank of Canada has paused cuts to the overnight policy interest rate – at least for now – holding it at 2.25%.

Throughout 2025, the overnight rate has been cut by 100 basis points, with two cuts at the beginning of the year, and two cuts announced in September and October, respectively.

Read more: Bank of Canada slashes overnight policy rate to 2.25%: An update on housing | Rates.ca

“Governing council sees the policy rate at the right level to keep inflation close to the 2% target while helping the economy through this period of structural adjustment,” said Governor Tiff Macklem in this morning’s address. “Nevertheless, uncertainty remains high and the range of possible outcomes is wider than usual. If the outlook changes, we are prepared to respond.”

Despite a year marked by tariffs-related layoffs, residual trade uncertainty and a housing market slowed to a crawl – not to mention the upward-creeping cost of living – there are faint glimmers of hope as we exit the year and move into 2026.

While the job market remains soft, job growth has been stronger than expected throughout the last three months, rising cumulatively by 0.09% to an overall employment rate of 60.09%.

More encouragingly, unemployment fell by 0.04% in November, inching down over the past two months from a peak of 7.1% - the highest it had been since 2016 – to 6.5%.

“That's certainly much higher than we'd seen coming out of the pandemic and it has trended upwards, but the last few months have shown an improvement,” says Shelly Kaushik, senior economist with BMO Capital Markets.

To put it in perspective, there were 80,000 fewer unemployed people in November than in October – most significantly among young people.

This can be attributed largely to rollbacks in the national immigration target – between January and April of this year, the population of Canada grew by only 20,107 people (0.0%), the smallest quarterly growth since  early in the pandemic. 

“Over the last few years, there were many more people who were unemployed looking for a job,” she says. “At this point, it's swung the other way where population growth is essentially stabilized, and that is helping to relieve some pressure off the job market and off the jobless rate more specifically.”  

As Jays Fever swept the nation, economy got a temporary boost during Toronto's historic run to the World Series

Consumer spending has also held steady despite the trade and job uncertainty that plagued most of the year.

The year was marked by big swings in purchasing and pull-backs, says Kaushik. She saw people snapping up large, planned purchases (like on a new car) amidst tariff fears, and then just as swiftly tamping down on spending as soon as tariffs were firmly in place.

However, domestic spending remained flat through the third quarter with growth expected in the fourth, buoyed by interest rate cuts, the Buy Canadian movement, and overall strong job sectors (excluding those directly hit by tariffs, like auto, steel and lumber).

“Canadian households are highly leveraged and so they're quite sensitive to changes in interest rates,” says Kaushik. “The fact that interest rates have come down have certainly helped buffer spending.”

And then autumn set in and the whole country got swept up in Blue Jays Fever during their phenomenal post-season run to the World Series. 

While the series ultimately ended in heartbreak, the restaurants, accommodation and entertainment sectors in Ontario saw a significant bump in employment through October before tapering back down.

“Despite the give-back in November for those sectors, the broader number was still pretty good. Employment did still rise quite significantly,” says Kaushik. “It was nice to see the fingerprints of the Blue Jays in those numbers.”

Affordability concerns persist in the housing market, while sellers struggle with budget shortfalls

According to the Canadian Real Estate Association, national home sales inched up 0.9% between September and October. Year over year, the non-seasonally adjusted national average home price was $690,195 in October, down 1.1% from the previous year.

Regionally, Alberta and Quebec have emerged as the strongest markets, while Toronto and the rest of southern Ontario continue to flounder. 

“It’s not just condos, although condos are certainly the area of the most significant weakness,” says Kaushik. “It’s really being driven by affordability and the fact that prices remain challenging for would-be home buyers.”

In the Greater Toronto Area (GTA), for example, home sales plummeted 15.8% from November 2024 to November 2025. The average selling price of a home also declined 6.4% during the same period – it now sits at $1,039,458.

Sales and average price by home type (November 2025)

(Source: TRREB Market Watch, November 2025) 

“I don’t think 2026 will be easier than 2025,” says Victor Tran, Rates.ca real estate expert and licensed mortgage broker. “There’s just no positive signs, in my opinion, where things will improve next year, where we’re going to see supply being absorbed with the demand that’s been sitting on the sidelines.”

While activity remains relatively stable for homes over $2 million and in tonier areas around Toronto’s midtown, most homebuyers – whether they’re middle-income, lower-income and first-time home buyers – simply struggle with the math.

“The people who can qualify for a mortgage and have the funds to support the payments, after they actually sit down and compare how much more it costs to own a home than to rent, they get turned off,” he says. “A lot of people don't want to put that money into a declining asset. Not when they can potentially make 3% to 4% in the stock market over the next few months.”

Sales and average price by home type (YOY change)

(Source: TRREB Market Watch, November 2025) 

Home sellers are also in a rut.

Depending on how much equity they have in their homes and when they purchased it, home sellers are increasingly finding themselves between a rock and a hard place, flattened on both sides by the rising cost of living and the prospect of having to sell at a loss from when they bought it.

“Some people that purchased during the pandemic by the peak of the market, they bought for the record highs. If they’re trying to sell now, they’re definitely going to lose money,” he says. “Where are you going to come up with the money to cover that shortfall? You owe the bank a certain amount. How will you pay off the bank and pay for real estate commissions and legal fees and all that, just to get out of the house?”

Budgets to stretch even thinner by higher mortgage payments and food costs in 2026

Starting in 2025 and by the end of 2026, 60% of outstanding mortgages are set to renew, with borrowers expected to pay up to 20% more than what they did going into 2025.

According to data from the BoC, five-year fixed mortgages make up around 40% of all mortgages in Canada. Many of these mortgage-holders began their term during the pandemic lows of 2020 and 2021, when interest rates hovered well below 2%.

“They’ll be renewing into a rate that’s easily doubled or even tripled,” says Tran. “Payments are going to go up, and [we will see] whether default rates or mortgage delinquency rates will increase. We have been seeing an increase already in Ontario.”

He says that most of the people he’s helped through their renewals are facing payment increases of between $300 to $500 a month, and a few upwards of $800 a month.

While most people he works with can manage these higher payments, the bigger struggle is balancing this growing expense with the overall higher cost of living.

“Now you have $500 less going towards other things, like savings, or eating out, or groceries,” he says.

This spike in payments is ill-timed, given the steady rise in household expenses that Canadians can anticipate over the next year.

Grocery prices set to soar in 2026

While inflation overall has remained steady at 2.2% as of October 2025 – mainly aided by falls in gas prices – households are being hit hardest where it hurts: through more expensive cell phone plans, home and auto insurance (which saw increases of 6.8% and 7.3% respectively), and food.

According to the latest Canada Food Price Report, food prices across the country are expected to rise 4% to 6% in 2026. This translates to roughly $1,000 more for the same amount of food for an average family of four.

Most of this rise in prices comes from a multitude of climate-related and geopolitical factors.

A weak Loonie against the U.S Dollar means that Canadians have less purchasing power with our biggest food trading partner, while extreme weather around the world has slowed down food production, yielding fewer crops and more expensive meat.

Severe drought in Western and Midwestern Canada has knee-capped beef production, for example, while flooding, extreme heat and drought in places like West Africa and Brazil have directly impacted the price and availability of staples such as chocolate and orange juice, according to the Food Price Report.

None of this is helped by the fact that as a country, Canada is coming off several years of rapid inflation. If there is a silver lining to be found (and it’s a big if), it’s in the slight slowdown of food inflation we’ve seen through the autumn, from a 4% increase in September down to 3.4% increase in October.

So while food prices may go up due to other factors, food inflation overall has slowed steadily.

“Normalization is really just slower or more stable, steady price growth,” says Kaushik. “But the fact is, we don’t expect to see – or want to see – broad-based price declines to where they were in the pandemic because that would indicate quite a bit of weakness in demand and economic growth.”

Instead, the governing council of the BoC is focused on keeping inflation at bay and boosting the rest of the economy with the hopes of raising incomes for average Canadians to restore affordability.

“Many Canadians are feeling squeezed by the cost of living. It underscores the importance of keeping inflation low, so that incomes can catch up,” said Governor Macklem. “We need to improve our productivity, we need to invest more, we need to diversify our trade. That’s what’s going to grow income. And with more income, everything becomes more affordable.”