Bank of Canada Rate Hike Odds Surge as Housing Market Hits 25-Year Low
Traders are pricing in an 87% chance the Bank of Canada will raise its policy rate on October 28, driven by stubborn inflation tied to high energy costs. The potential hike threatens a housing market already at a 25-year low in sales volume.
As of October 21, 2026, expectations for a Bank of Canada interest rate increase have risen sharply ahead of the central bank's decision on October 28. Traders in the overnight swap market now assign an 87 per cent probability to a 25-basis-point hike, up from 70 per cent earlier in the week.
The Bank of Canada's policy rate has stood still at 2.25 per cent since a quarter-point cut in October 2025, and the central bank has not raised interest rates since July 2023. However, inflation rose to 3.1 per cent in September, driven by higher fuel prices. Governor Tiff Macklem warned the bank may need to raise borrowing costs if energy prices remain elevated, citing no resolution in sight for the conflict in the Middle East. According to the Bank of Canada's latest survey, businesses are bracing for higher prices.
Major financial institutions have adjusted their outlooks accordingly. Bank of Montreal, RBC Dominion Securities, and Desjardins Group flipped their predictions for October 28 from a hold to a hike. This shift comes despite a recent Bloomberg survey consensus that pointed to a hold. Looking further ahead, Macquarie Group economist David Doyle predicts the Bank of Canada will raise its policy rate by 125 basis points by the end of 2027.
A rate increase would arrive as Canada's housing market is severely weakened. The volume of home sales nationwide is currently at a 25-year low, with per capita home sales back to 1990s levels. The Canadian Real Estate Association downgraded its forecast for 2026 home sales activity for a third straight quarter, calling for 444,530 homes to be sold by year-end, representing a 5.2 per cent drop from 2025. Buyer confidence is described as "unbelievably weak" due to economic uncertainties, including the Canada-U.S. trade war and AI's impact on jobs.
Experts warn that rising rates would further depress the real estate market. Higher interest rates would immediately increase payments on variable-rate mortgages and rates for new fixed mortgages. Consequently, the pool of eligible homebuyers would shrink, shifting power from sellers to qualified buyers. Home prices could dip lower, with a gradual grind lower over the next three to six months considered plausible.