Canada is facing a shifting economic landscape as labour market instability and cooling housing demand increase downside risks. Recent data indicates a significant decline in employment alongside a downturn in the real estate sector, complicating the upcoming Bank of Canada policy decision scheduled for October 28.

What is driving the Canadian economic risk shift?

Moody's Analytics noted that the balance of risks in the country has shifted to the downside due to labour woes and price pressures. The employment situation worsened in September, with Statistics Canada reporting a loss of approximately 68,000 jobs. This decline pushed the national unemployment rate up to 6.5%.

How is the housing market performing?

The Canadian housing market has also experienced a downturn. According to the Canadian Real Estate Association (CREA), home sales fell 2.3% in September compared to August. Key housing trends include:

  • The national benchmark home price dropped to $652,800, a 3.5% decrease from the previous year.
  • Higher mortgage rates are weighing on potential buyers.
  • CREA has lowered its 2026 sales forecast to 444,530 transactions.

CREA senior economist Shaun Cathcart stated that many markets "took a step back in September" following a period of positive progress. This slowdown follows a jump in fixed mortgage rates, with some forecasters now expecting the Bank of Canada to implement a rate hike.

Challenges for the Bank of Canada

The combination of weak employment and high energy costs creates a difficult environment for policymakers. While weaker jobs can reduce inflation, they also make loan repayments more difficult for borrowers. The Bank of Canada currently maintains a policy rate of 2.25% as it prepares for its next meeting.

FAQ

What was the unemployment rate in September?

The unemployment rate in Canada reached 6.5% in September following the loss of 68,000 jobs.

Why are home sales declining?

Sales are falling primarily because higher mortgage rates are making housing less affordable for many buyers. This uncertainty is expected to keep some consumers on the sidelines of the market.