Canadian real estate slumps as Bank of Canada holds key rate steady

National home sales dropped sharply in January, falling 5.8% month-over-month and 16.2% from a year earlier, according to the Canadian Real Estate Association (CREA).

The association reported that new listings rose while demand lagged, pushing the national sales-to-new listings ratio to 45%, a sign of a cooling market.

"With new supply increasing and sales slowing, the national Home Price Index continues to soften," CREA said in a statement.

The CREA data showed that the MLS® Home Price Index (HPI) fell 0.9% compared with December 2025 and was down 4.9% year-over-year, while the national average sale price dipped by 2.6% on an annual basis.

"Demand remains subdued even with favourable winter weather fading in parts of the country," CREA added.

The housing downturn arrived even as the Bank of Canada decided to keep its target for the overnight policy rate unchanged at 2.25% on January 28, with the bank rate at 2.5% and the deposit rate at 2.20%.

The central bank said the policy stance remained appropriate amid uncertainty about global economic conditions and evolving trade dynamics.

In a press conference following the decision, Bank of Canada Governor Tiff Macklem noted that while inflation was close to target, broader forces such as unpredictable US trade policy and global risks complicated the outlook.

“Monetary policy cannot compensate for structural headwinds in the economy, but we are prepared to respond as conditions evolve,” Macklem said.

Keeping the key rate stable effectively left borrowing costs, including the prime rate, unchanged. Economists broadly expect the Bank of Canada to maintain the rate through much of 2026, given ongoing economic headwinds.

Canada’s home sales and prices declining as bank rates held steady. Photo: Freepik

Analysts say the combination of elevated inventory, cautious buyers and regional disparities has weighed on the market.

Severe winter weather in parts of Ontario and Quebec contributed to the sluggish start, but underlying affordability issues and a broader economic slowdown also played roles, according to mortgage industry analysts.

Despite the weak start, some economists believe pent-up demand could support a gradual recovery later in the year.

CREA forecast modest improvements in activity as the spring buying season progresses but warns that uncertainty remains elevated.