UPDATED: Uncertainty over U.S. tariffs weighed heavily over the Bank of Canada’s decision to hold the country's overnight interest rate at 2.75 per cent, as the real estate sector keeps a close watch on the rapidly shifting economic situation.

Signs of a slowing economy due to hostile economic policies of the U.S. and raised inflation expectations led Canada’s central bank to its decision.

“A lot has happened since our March decision five weeks ago. But the future is no clearer,” Bank of Canada governor Tiff Macklem said in the announcement. The bank is not sure which tariffs will be imposed, whether they will be reduced or escalated, and how long the trade tension will last, he added.

He said the central bank cannot offset the impacts of a trade war, but it can manage the resulting inflation.

“Moving forward, we will pay close attention to the risks and uncertainties to the Canadian economy and inflation,” Macklem said. The bank will assess both the downward pressure on inflation from the expectations of a weaker economy and the upward pressure from higher costs.

The move was not unexpected, but dampened hopes for a stronger residential and commercial real estate sector in the latter half of 2025.

"The recent Bank of Canada decision to hold interest rates unchanged is unfortunate news, as we expect this will either slow or halt many transactions that have been on the sidelines anticipating a rate cut – although we recognize the bank's rationale is informed by greater issues at play in the broader economic landscape," said Mark Fieder, principal and president of Avison Young Canada, in a statement emailed to RENX Homes.

"Looking ahead, we have a watchful eye on tariff decisions and the repercussions on the commercial real estate industry, particularly in the industrial sector.”

BoC’s expectations for Canada’s economy

The Bank of Canada had cut interest rates steadily from a peak of five per cent last June, as higher inflation was brought under control. 

But it is now expecting a considerable slowing of business investment and household spending from the economic strain. Moving carefully and navigating the risks will be its strategy going forward, and Macklem said the bank will be less future-facing than normal.

“Looking beyond the near-term, what happens to the Canadian economy and inflation depends critically on U.S. trade policy, which remains highly unpredictable,” he said in a media briefing.

In response to a question why the Bank of Canada did not make an eighth consecutive cut given the dim economic expectations, Macklem said the Canadian economy is starting from a strong position, but the unstable, ever-changing situation means the central bank is waiting for more information with the tariffs and assessing the impacts of increased uncertainty.

Inflation was at 2.3 per cent in March, down from 2.6 per cent in February but up from 1.8 per cent in January, according to Statistics Canada data released this week.

Housing market response to the uncertainty

The uncertainty has left its mark in different ways in Canada’s housing markets. Royal LePage’s Q1 housing report found prices and sales falling in the pricey Greater Toronto and Vancouver areas. Meanwhile, activity and price increases remained brisk in Quebec, the Prairies and Atlantic Canada - acknowledging the less expensive markets are attracting more buyer interest.

Royal LePage’s director of research and communications Anne-Elise Cugliari Allegritti told RENX Homes she expects buying activity to be delayed until the summer. Many Canadians, she said, are waiting for a new government to be elected and for more certainty with the economy before making their decisions.

Data from a separate survey by digital real estate platform Wahi showed almost identical tendencies - generally flat housing prices in Toronto and Vancouver, but significant increases in markets such as Quebec City (16 per cent), Montreal and Saskatoon (nine per cent). The survey also found two-thirds of Canadians feel it's a bad time to make a "big-ticket purchase."

The Canadian Real Estate Association (CREA) also found prospective buyers staying on the sidelines. In March, national home sales fell 4.8 per cent month-over-month, the association found. The largest declines were in Ontario and British Columbia, as sales slipped nationwide in all but a handful of smaller markets.

“Going forward, the Canadian housing space will also have to contend with the actual economic fallout,” Shaun Cathcart, CREA’s senior economist, said. “In short order we’ve gone from a slam dunk rebound year to treading water at best.”

Even as interest rates fall, 44 per cent of Canadians said they expect housing costs to increase within the next year, according to a survey by Canadian consumer insolvency firm MNP Ltd.

Though “uncertainty remains around U.S. tariffs, their on-again, off-again nature may be providing Canadians with some optimism for the future—especially since these tariffs have yet to make a full impact on household budgets,” Grant Bazian, president of MNP Ltd., said.