Canada's housing sector could see some relief as lower borrowing costs loom on the horizon. According to a recent analysis from BMO Capital Markets, the Bank of Canada is poised to reduce interest rates three times before the active spring real estate season in 2026. This outlook stems from a cooling job market, though persistent inflation and upcoming economic data could alter the timeline. In this article, we break down the forecast, its drivers, and what it might mean for homebuyers and the property market.

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BMO Predicts Three Rate Reductions by Spring 2026

BMO, one of Canada's major banks, anticipates the Bank of Canada will lower its key interest rate by a total of 75 basis points by spring 2026. This equates to three 25-basis-point cuts, potentially starting as early as the September 17, 2025 meeting Better Dwelling. The forecast positions rates at the lower end of the neutral range, providing modest support to a slowing economy.

Market expectations align closely, with traders fully pricing in an initial cut soon. However, BMO emphasizes that this path depends on economic indicators. The bank's senior economist notes that these adjustments would leave rates at a level that neither boosts nor hinders growth, aiming for balance amid uncertainty BMO Economics. Recent Bank of Canada decisions support this view. The central bank held its overnight rate at 2.75% in its latest meeting, marking the second consecutive hold after a series of reductions BMO Economics. While no immediate cut occurred, the door remains open for easing if economic weakness persists.

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Weak Employment Data Supports Case for Cuts

A key factor in BMO's projection is the softening labor market. Job growth has slowed, creating excess labor supply and reducing demand for workers. This slack is evident in recent data, with the Bank of Canada itself highlighting concerns over surplus labor Better Dwelling. Wage growth is also decelerating, which typically follows high unemployment. Slower wage increases mean less disposable income for households, curbing spending and potentially easing price pressures. BMO warns that this trend justifies rate relief to stimulate activity, though it must be balanced against inflation risks Reddit Summary. The Bank of Canada's neutral rate range is estimated at 2.25% to 3.25%. BMO's forecast would bring the policy rate to the lower end, offering a slight economic nudge without overstimulating BMO Economics.

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Risks and Uncertainties Around Rate Cuts

While the outlook points to easing, BMO cautions that cuts are not guaranteed. A major risk is sticky inflation. The next Consumer Price Index report, due just before the September meeting, could sway expectations. If inflation remains elevated, near the upper end of the Bank of Canada's tolerance band—policymakers may delay action to avoid undermining progress Better Dwelling.

The Bank of Canada has warned that premature cuts could reignite price pressures. Core measures like CPI-trim and CPI-median are hovering close to targets but not yet firmly under control BMO Economics. Market sentiment is volatile, and a hotter-than-expected inflation reading could quickly erode expectations for an imminent cut. Another consideration is the divergence from U.S. policy. Canada's economy is closely tied to its largest trading partner, and the Bank often aligns estimates with U.S. neutral rates. Recent economic decoupling adds complexity, potentially limiting the Bank of Canada's room to maneuver Better Dwelling. Surveys from other sources echo caution. Median responses suggest gradual easing to 2.25% by December 2025, with no further changes through 2026 MPA Magazine. Reuters polls indicate the Bank may hold at 2.75% in the near term but cut at least twice more this year Reuters.

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Potential Impact on Real Estate and Homebuyers

Lower rates could provide a boost to Canada's property market by reducing borrowing costs. Variable-rate mortgages, linked to the overnight rate, would become more attractive, potentially encouraging more buyers to enter the market. This is especially relevant as the spring season approaches, a traditionally busy time for real estate transactions.

However, BMO notes that these cuts may not spark the housing surge some anticipate. Unlike pandemic-era easing, which funneled credit into real estate amid lockdowns, current reductions address a shrinking economy and policy uncertainty. Historical examples from the 1980s and 1990s show that aggressive cuts during frothy markets sometimes failed to stimulate activity for years Better Dwelling. For homebuyers, this means monitoring economic signals closely. Weaker job markets and slower consumption could temper demand, even with cheaper financing. On the positive side, if cuts materialize, they might improve affordability in a market still grappling with high prices.

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Outlook and Considerations

BMO's forecast aligns with broader expectations of easing, but timing hinges on data. If inflation cools and employment weakens further, the first cut could come soon. Otherwise, delays are possible, with markets adjusting rapidly to new information. Global factors, including trade tensions, add layers of uncertainty. BMO and other analysts project a cautious path, with rates potentially stabilizing at lower levels by mid-2026 BMO Commercial Bank.

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At Coldwell Banker Horizon Realty, we keep a close eye on these developments to guide clients through changing market conditions. If you're considering buying or selling, understanding rate trends can help you time your move effectively. Reach out to us for expert advice tailored to your real estate goals.