The Bank of Canada held its key interest rate steady this week, keeping it at 2.25 per cent. That decision, widely anticipated, comes as fresh global conflicts are stirring up a lot of worry. Especially, the escalating war in Iran is pushing oil prices higher, making everything from gas at the pump to the cost of everyday goods more expensive for Canadians.
A Market Stuck in Place
For many Canadians hoping for a break in the housing market, a rate cut from the Bank of Canada would be a big help. But that's not happening right now. Experts say the market is caught in a 'stalemate,' a kind of holding pattern where things aren't getting dramatically worse, but they aren't getting much better either.
Randall Bartlett, deputy chief economist at Desjardins Group, summed it up for Yahoo Finance Canada. He said we're 'in a situation now where it's a bit of a stalemate.' He doesn't see a quick rebound. Instead, he expects a 'slow grind higher' for the next couple of years. This means buyers and sellers could be waiting a while for things to shift significantly.
Thing is, the Bank of Canada isn't just looking at housing. They're weighing a whole lot of economic signals. And right now, those signals are flashing 'caution.' Governor Tiff Macklem himself described the current level of uncertainty as 'acute,' making it clear the Bank is comfortable staying put for a bit.
Phil Soper, CEO of Royal LePage, thinks the economic concerns that might lead to a rate cut are actually being 'pushed to the side.' He believes the Bank of Canada is now more worried about higher energy prices and how they'll spread through the economy. That makes lower borrowing costs for housing less likely, especially if gas prices stay high.
The Energy Shock's Ripple Effect
The conflict in the Middle East has thrown a major wrench into global energy markets.
Crude oil costs have been seesawing, but they're still way up from where they were earlier this year. Brent crude, a key international benchmark, recently spiked to almost CAD$150 a barrel after targeted strikes on Iranian energy infrastructure.
Wild part? This latest surge comes on top of what was already a major rally. Brent crude has jumped roughly 80 per cent since the war began in late February. A big reason for this is the near-total shutdown of tanker traffic through the Strait of Hormuz. That narrow chokepoint handles about 20 per cent of the world's oil and gas flows. Shutting it down means a huge chunk of global supply is suddenly off the table.
Even with major efforts to release reserves — like the IEA's record 400 million barrels and the U.S. Tapping 172 million barrels from its Strategic Petroleum Reserve — prices haven't really been contained. Gas prices across Canada have already started to climb, hitting levels not seen since 2023, up nearly a dollar a litre since the conflict started.
Governor Macklem acknowledged this directly. He said the 'recent sharp increase in global energy prices is causing higher prices at the pump, as we’ve all seen, and this will push inflation up in coming months.' He did note that the risk of these higher energy prices 'quickly spread[ing] to the prices of other goods and services looks contained' for now. But he warned: 'the longer this conflict lasts and the wider it gets, the bigger the risks.'
And if energy prices do stay high, Macklem was clear: 'we won't let their effects broaden and become stubborn inflation.' This means the Bank is ready to raise rates if needed to cool down broader inflation, even if it means more pain for the housing market.
Wait, it gets worse. While West Texas Intermediate (WTI), the North American benchmark, is trading around CAD$130 a barrel, Asian buyers are seeing much higher prices. Dubai crude, their benchmark, hit over CAD$200 a barrel last week. That's an unheard-of CAD$70-plus gap for the same commodity. Rory Johnston, a commodities analyst, said the longer the Strait of Hormuz stays closed, the more Asia's supply shortage becomes everyone's problem. That's proof that actual barrels are much scarcer than futures suggest.
Trade Tensions Add Another Layer
As if geopolitical conflict wasn't enough, Canada's economic outlook is also clouded by the ongoing review of the Canada–U.S.–Mexico Agreement, or CUSMA. This trade deal is up for its six-year review, and the potential outcomes are pretty varied, ranging from a relatively smooth renewal to a full-blown trade war.
A recent report from Desjardins laid out three possible paths. The most optimistic, or 'baseline,' scenario keeps the agreement mostly intact. This would mean effective tariffs on Canadian exports stay around 2.7 per cent, leading to what they call a 'fragile recovery' for the economy.
But there are much more concerning possibilities. If CUSMA becomes subject to annual reviews, tariffs could jump to nearly 10 per cent. And if the agreement is scrapped entirely? The effective tariff rate could skyrocket to 25 per cent. That worst-case scenario would likely trigger a recession in Canada by 2027.
Randall Bartlett from Desjardins explained the fallout from these downside scenarios. He said, 'you end up in a situation where there's weaker economic activity, rising unemployment rate, and ultimately that's going to be a drag on the housing market in that you'll have fewer buyers entering the market.' This means trade uncertainty directly threatens to further dampen housing demand.
This adds another layer of complexity for the Bank of Canada. They're not just watching inflation and global energy; they're also trying to gauge the impact of potential trade disruptions on Canada's overall economic health.
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The Bank of Canada finds itself in a tough spot. On one hand, persistent high energy prices could force them to raise rates to fight inflation, further cooling the housing market. On the other, a big downturn in the economy, perhaps due to trade tensions, could open the door for rate cuts. Governor Macklem acknowledged this delicate balance. He stated that if energy prices come back down and the economy shows more weakness, the Bank 'can lower our policy rate to add more support.' But for now, he couldn't offer a timeline for any rate changes, citing the 'acute' uncertainty from the Middle East conflict and other global factors. So, for Canadian homeowners and prospective buyers, the wait continues. The housing market remains in its holding pattern, hostage to global oil markets and complex trade negotiations. It won't be a quick fix. It's a slow grind.
This article was created with AI assistance.
