Bank of Canada Holds at 2.25%: Is Canadian Housing at an ‘Affordability Bottom’?

The Bank of Canada held its key interest rate at 2.25% on June 10 — the fifth consecutive hold since October 2025. The decision itself was widely expected, but what followed caught the market’s attention: an expert told The Toronto Star that Canadian housing may have reached what they described as an “affordability bottom.” That phrase alone is generating a lot of discussion among buyers, sellers and mortgage brokers right now.

The Rate Decision: A Tightrope Walk

This was the Bank’s fourth scheduled rate announcement of 2026. Governor Tiff Macklem and his policy committee found themselves in a genuinely difficult position — one that has kept rates on hold for eight straight months. According to the Bank’s official statement, the central bank chose to maintain the current setting that “balances” the competing risks of economic weakness and rising inflation. The opening statement pointed to a weaker growth backdrop — GDP edged down 0.1% in the first quarter, weaker than expected at 0.7%.

The economy is clearly softening. GDP growth has slowed to around 0.7% in early 2026, unemployment is ticking upward and consumer spending has weakened. Normally, this would be a clear case for cutting rates to stimulate activity.

But then there’s inflation. Energy prices remain elevated due to Middle East conflicts and ongoing supply chain pressures. Core inflation — excluding volatile food and energy components — has been stubbornly above the Bank’s 2% target. As reported by The Toronto Star, experts have pointed out that cutting rates too soon could cause inflation to reaccelerate, while keeping them high for too long could push the economy into recession. This is the dilemma at the heart of the Bank’s decision-making.

The result: a hold at 2.25%. For variable-rate mortgage holders, that translates to roughly 6.7% to 7.0% depending on the lender. Fixed-rate borrowers who locked in during the pandemic are still paying rates well above 5%. Anyone planning to renew or refinance in the next year faces no relief from the Bank yet.

Notably, 2.25% sits at the bottom of the Bank’s neutral rate range (2.25% to 3.25%). Financial Post analysis suggests the Bank is signaling that it is unlikely to hike rates in 2026, but this does not mean an immediate cut. The Bank is walking a tightrope — and every data point matters.

“Affordability Bottom” — What Does It Actually Mean?

The concept of an “affordability bottom” is deceptively simple. It suggests that despite recent price declines in many Canadian markets, the combination of lower prices and stabilized interest rates has created a window where housing is more accessible than it’s been in years.

The math behind the logic: prices have come down from their peaks. The Royal LePage National Home Price Index, released alongside the rate decision, shows the national average home price at $812,900 — down 2.0% year-over-year. In some markets like Hamilton, the average home has fallen $266,182 from its February 2022 peak. In Ajax, prices dropped 5.3% in May alone. Oakville saw a 4.2% decline, with the average price falling to $1.56 million.

Meanwhile, interest rates have stopped climbing. After hiking from near-zero to 5.0% between March 2022 and July 2023, the Bank has held steady for eight months. For buyers who’ve been watching from the sidelines, this stability — combined with lower prices — could feel like an opening.

“The affordability bottom means that the worst of the affordability squeeze may be over,” the Toronto Star quoted an expert as saying. “Prices are down, rates have stopped rising — the pressure valve is being released.”

But I believe we need to look at this number more deeply. An affordability bottom does not equal a price bottom, nor does it mean now is the right time to buy. It simply means the worst of the squeeze may be over — but what happens next remains full of uncertainty.

The Counterargument: Why Not to Rush In

Not everyone is convinced. Several economists point out that “affordability bottom” doesn’t automatically mean prices will bounce back or that it’s the right time to buy.

The biggest concern is income growth. Without rising incomes, affordability improvements from lower prices and stable rates are limited. Canadian household incomes have barely grown in real terms over the past two years. A 2% price decline means less if your salary hasn’t budged.

The CMHC has warned of recession risks for 2026, citing trade tensions and weak global demand. If a recession hits, unemployment could rise sharply — making mortgage payments much harder to manage even at current rates.

There’s also the question of how long you plan to stay. In volatile markets, transaction costs (land transfer taxes, legal fees, agent commissions) can easily exceed 5% of the purchase price. If you sell within two years, those costs may outweigh any modest price appreciation.

The Regional Picture: Not All Markets Equal

The data shows a highly fragmented picture across the GTA and beyond:

• Ajax: Prices plunged 5.3% to $838,788 in May — one of the sharpest monthly declines in the GTA
• Oakville: Prices dropped 4.2% to $1.56 million, a significant correction in this affluent suburb
• Hamilton: Average home at $755,202 — down from a peak of roughly $1.02 million in early 2022
• Peel Region (Mississauga): Prices rose 0.6% — one of the few GTA markets still seeing gains
• GTA overall: May sales were 5,369 units (-18.2% year-over-year), with an average price of $1.07 million. June data has not yet been released.

This divergence is important. Markets that experienced the steepest price declines now offer better value relative to rents and incomes. But areas like Peel continue to see modest gains, suggesting the “affordability bottom” may have already been reached — and possibly passed — in some communities.

Looking at the broader picture, financial data from May 2026 shows that British Columbia home sales struggled as mortgage rates rose and the labour market stayed weak. Alberta’s province-wide sales dropped 12.2%, while in the Greater Toronto Area, Ajax and Oakville experienced some of the steepest monthly declines. Yet Peel Region actually rose 0.6%, defying the broader trend.

The Rental Market Context

Adding another layer to the affordability picture, CMHC’s 2026 Mid-Year Rental Market Update, released on June 9, reveals that increased supply from new building completions and slower demand have eased asking rents across Canada’s major rental markets. Rents are falling as new completions surge and demand slows — but a rebound is expected in major cities as affordability improves for renters who may eventually transition to buyers.

This is relevant because the rent-to-buy calculation has shifted significantly. In markets where rents have been falling while prices are also declining, the math for first-time buyers is changing. For some markets in Vancouver and parts of Toronto, the rent-to-price ratio is becoming more favourable for buyers than it’s been in years.

What Should You Do?

If you’re a buyer considering entering the market right now, here are practical factors to weigh:

• Your job security: With economic uncertainty, stable income matters more than ever before. Don’t stretch beyond what you can comfortably afford if your income were to drop.
• The Bank’s next move: Most analysts expect a rate cut in the second half of 2026 if the economy continues to soften. If you can wait a few months, rates could improve.
• Your time horizon: If you plan to live in the home for five-plus years, short-term price fluctuations matter less. If it’s a flip or two-year hold, the transaction costs may not be worth it.
• Rent vs. buy math: In some markets, particularly Vancouver and parts of Toronto, the rent-to-price ratio is becoming more favourable for buyers than it’s been in years.
• Your personal circumstances: Everyone’s situation is different. If you need a home now and can afford it, the “affordability bottom” may be exactly where you want to be. If you can wait, there might be more room for improvement.

The Bottom Line

The affordability bottom may be real. But it’s a floor, not a ceiling — and the path forward depends on economic conditions, Bank of Canada policy, your personal financial situation, and broader market dynamics including the shifting rental landscape.

For Chinese-Canadian buyers looking at opportunities across Canada, these developments are particularly relevant. The combination of softening prices, stable rates, and shifting rental dynamics creates a complex but potentially rewarding environment for those who are prepared.

The Bank’s Neutral Rate Debate

A critical piece of context that is often overlooked in the affordability bottom conversation is the concept of the neutral rate — the interest rate at which monetary policy neither stimulates nor restrains economic activity. The Bank of Canada’s estimated neutral rate sits between 2.25% and 3.25%, meaning the current 2.25% rate is at the very bottom of that range.

This matters because it tells us something important about where the Bank thinks we are in the economic cycle. By setting rates at the bottom of the neutral range, the Bank is signaling that it sees more downside risk than upside risk. In other words, the Bank believes the economy is weaker than its long-term potential.

This assessment has direct implications for housing. When the Bank is at or near the neutral rate floor, there is limited room to cut rates further without risking inflation. If the economy deteriorates significantly — which the CMHC has warned could happen in 2026 due to trade tensions and weak global demand — the Bank may find itself with limited tools to respond.

The Financial Post reported that economists believe the Bank has “poured cold water on rising bets for an interest rate hike in 2026,” but also tempered expectations for aggressive cuts. The message from the Bank’s press conference with Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers was one of cautious balance — acknowledging the weaker growth backdrop while warning that inflation remains a concern.

The CMHC Rental Market Update: A Shifting Landscape

Beyond interest rates and home prices, the rental market is undergoing significant changes that have direct implications for housing affordability. The CMHC’s 2026 Mid-Year Rental Market Update, released on June 9, provides a comprehensive picture of these shifts.

The report found that increased supply from new building completions and slower demand have eased asking rents across Canada’s major rental markets. Rents are falling as new completions surge and demand slows — but a rebound is expected in major cities as affordability improves for renters who may eventually transition to buyers.

This dynamic is particularly relevant for first-time homebuyers. Historically, the rent-to-buy calculation has been a key decision factor. In markets like Toronto and Vancouver, where rents have been rising faster than home prices for years, renting was often the more affordable option. Now, with rents falling and prices declining, that calculus is shifting.

Toronto CityNews reported on the CMHC findings, noting that while rents are falling in the short term, demand is expected to grow as affordability improves. This suggests a potential rebound in rental markets that could affect investment property calculations for buyers who are considering purchasing to rent out.

The Broader Economic Picture

To understand the housing market, we need to look at the broader economic context. GDP growth has slowed dramatically — from strong pre-pandemic levels to 0.7% in early 2026, and even contracting by 0.1% in Q1 according to the Bank’s own data.

Unemployment is ticking upward, consumer spending has weakened, and business investment remains subdued. These are classic signs of an economy that is cooling — the kind of environment where central banks typically cut rates to provide stimulus.

The reason they haven’t is inflation. Despite the economic slowdown, core inflation remains above target. This is partly due to energy prices — Middle East conflicts and supply chain disruptions continue to push costs higher. It’s also partly structural, as Canada’s rapid population growth from immigration creates persistent demand-pull inflation in housing and services.

This combination — weak growth plus stubborn inflation — is what economists call stagflationary pressure. It’s the worst case scenario for policymakers, because the usual tools don’t work well in this environment. Cutting rates could ignite inflation; keeping them high could deepen the slowdown.

The Bottom Line

Sources: Toronto Star, Royal LePage National Home Price Index June 2026, Bank of Canada June 10 rate decision, CMHC 2026 Mid-Year Rental Market Update (June 9, 2026), Financial Post, National Bank of Canada Housing Affordability Monitor Q1 2026