November 6, 2026 | Tricia McIntosh
Our team recently had the opportunity to hear directly from Doug Porter, BMO's Chief Economist, as he shared his outlook on interest rates, housing prices and the Canadian economy over the next few years.
There were some interesting takeaways, particularly for Canadians who are buying a home, renewing a mortgage or wondering where interest rates might be heading.
Here's what stood out and what it could mean for you.
Interest Rates: Don't Count on Significant Drops
Following the Bank of Canada's October 28 rate increase, Doug shared his expectation that the Bank would hold rates in December, with the possibility of one additional increase in January before entering a period of stability.
One of his more interesting observations was that today's interest rates aren't necessarily unusually high. In fact, the exceptionally low rates Canadians experienced between 2008 and 2023 were more of an exception than the norm.
Doug suggested that even five years from now, interest rates could be relatively close to where they are today.
For mortgage holders, this means:
Variable rates: Could increase slightly if the Bank of Canada raises rates again in January.
Fixed rates: Are influenced by the bond market, which has experienced upward pressure globally.
Future rate cuts: Are still possible, particularly if energy prices decline significantly, but Doug sees that as more of a possibility over the next 18 to 36 months rather than something to count on.
The key takeaway is that waiting for interest rates to return to the exceptionally low levels of recent years may not be a realistic strategy.
Home Prices: A Period of Stability Ahead?
The Canadian housing market has experienced a significant adjustment since prices peaked in early 2022, although the impact has varied considerably across the country.
Ontario and B.C. have seen some of the largest declines, while other regions have remained relatively stable.
Doug described the current housing market as soft rather than experiencing a crash. Sales activity remains slower than usual, with prices continuing to adjust in some markets.
Looking ahead, his expectation is for home prices to remain relatively flat over the next two to three years, allowing household incomes time to catch up.
This could gradually improve affordability without requiring another significant decline in home values.
For buyers, a more balanced market can mean greater selection, less competition and more time to make informed decisions.
What Does This Mean for Your Mortgage?
Thinking about buying a home?
Buyers may have more negotiating room than they've had in recent years. Rather than waiting for a significant drop in interest rates, it may be more practical to focus on what comfortably fits your budget today.
Renewing your mortgage soon?
Homeowners who secured mortgages at exceptionally low rates between 2020 and 2022 may still experience a payment increase at renewal. Reviewing your options ahead of time can help you prepare and determine which mortgage structure best suits your needs.
Have a variable-rate mortgage?
There could be another small increase in early 2027, although Doug's outlook suggests rates may stabilize after that. As always, economic conditions can change, and forecasts are not guarantees.
Have a fixed-rate mortgage?
Your existing rate remains unchanged until the end of your term unless you make changes to your mortgage earlier. While short-term rate movements won't affect your current payment, they may influence the options available when it's time to renew.
Inflation: Energy Prices Are Driving Much of the Increase
Inflation is currently around 3.1%, with much of the increase being driven by higher gasoline, diesel and heating oil prices.
When energy costs are excluded, inflation is closer to 2%, which is more consistent with the Bank of Canada's target.
There are also some encouraging signs. Prices for certain items, including natural gas, furniture and appliances, have declined compared to a year ago.
Doug expects inflation to ease toward 2.5% in 2027, potentially lower if energy prices decline.
One area to watch is whether higher diesel costs eventually work their way into grocery prices and transportation expenses.
The Bottom Line: Expect Gradual Change, Not Dramatic Shifts
One of the biggest takeaways from Doug's presentation was that Canada's economy and housing market appear to be moving through a period of gradual adjustment rather than dramatic change.
Interest rates may remain near current levels for some time, while home prices could stay relatively stable as household incomes catch up.
For buyers, this could create opportunities to enter the market with less competition and more time to make decisions. For existing homeowners, it reinforces the importance of planning around today's interest rates rather than relying on significant future reductions.
While no economic forecast is guaranteed, understanding the broader trends can help Canadians make more informed decisions about homeownership and mortgage financing.
Source: Doug Porter, CFA, Chief Economist, BMO Financial Group, economic outlook presentation, November 6, 2026. Views and forecasts reflect the economist's outlook at the time of the presentation and are subject to change.
