What Happened This Week
The Economy Takes a Step Back, Then a Small Step Forward
Statistics Canada reported that the economy contracted by 0.3% in October—the steepest monthly decline since February. Manufacturing led the slide, dropping 1.5%, with wood products plunging 7.3% after the United States imposed tariffs on Canadian lumber on October 14.
But November’s advance estimate showed a modest 0.1% rebound, driven by retail trade and transportation. The bottom line? Canada’s economy is moving sideways—not strong enough to spark growth concerns, but not weak enough to trigger alarm bells.
For mortgage borrowers, this matters because it strengthens the case for the Bank of Canada to keep interest rates on hold. Markets had been pricing in a potential 25-basis-point hike for mid-2026, but that scenario is looking less likely now.
As one economist put it: “The surprise October contraction suggests there is still significant slack in the economy. The Bank is unlikely to pivot back to hikes until they see a sustained rebound in the goods sector, which is currently reeling from trade-related headwinds.”
Toronto Housing Affordability: Still Stuck
While the GDP numbers grabbed headlines, RBC Economics released their latest housing affordability report this week, and the news for Toronto homebuyers isn’t encouraging.
In Toronto, it now takes 64.9% of a typical household’s income just to own a home. And while affordability has been improving thanks to interest rate cuts over the past year, that improvement has slowed dramatically.
In the third quarter of 2025, affordability improved by just 0.4 percentage points—compared to an average improvement of 1.7 points per quarter over the previous six quarters.
Translation: The easy gains from interest rate cuts are done. RBC’s report warns that “for affordability to improve much further, Canada would need steeper price declines or more robust income increases.”
Neither of those scenarios looks likely heading into 2026.
Mortgage Stress Shows Up in Holiday Spending
A CIBC-Ipsos poll this week found that 62% of Canadians didn’t travel during the holidays this year, with 31% citing budget constraints as the primary reason.
In a separate Royal LePage survey, 60% of homeowners expecting higher mortgage payments at renewal said they would reduce discretionary spending.
This isn’t abstract data—it’s real-world evidence of the renewal shock that’s hitting households right now. About 60% of outstanding mortgages are renewing in 2026 and 2027, with the Bank of Canada estimating payment increases of 15–20% for borrowers coming off five-year fixed terms signed in 2021 or 2022.
If you’re paying $2,500 per month now at a 2.0% rate, that jumps to roughly $2,875 to $3,000 per month when you renew at 4.4%. And with wage growth projected at just 3% for 2026 (according to Mercer’s latest compensation survey), something else in the budget has to give.
For a lot of people this year, that “something else” was the family vacation.
My Take
The GDP numbers tell a story of an economy that’s stuck in neutral—not strong enough to warrant rate hikes, but not weak enough to trigger more cuts.
That’s actually good news for borrowers. It means the Bank of Canada is likely to stay on hold for a while, giving variable-rate holders some breathing room and keeping fixed rates relatively stable.
But stable rates don’t solve the two bigger problems: affordability and renewals.
Let’s start with affordability. In Toronto, you need nearly 65% of your household income just to qualify for a typical home. Even with all the rate cuts we’ve had over the past year, that number is barely budging. The improvements we saw earlier in 2025—when rates were dropping quickly—have slowed to a crawl.
For first-time buyers, this is frustrating. Lower rates helped, but not enough. Unless we see significant price declines or major income growth (neither of which seems likely), Toronto’s housing market will remain out of reach for most households.
Then there’s the renewal wall. Hundreds of thousands of Ontario homeowners are renewing in 2026 and 2027 at rates that are 200 to 300 basis points higher than what they locked in back in 2021 or 2022. That’s a massive payment shock, and it’s already showing up in how people are managing their budgets.
The CIBC travel poll is a perfect example. People aren’t cutting back on vacations because they want to—they’re doing it because they have to. The mortgage comes first.
If you’re renewing in 2026 or 2027, you need to know your numbers now. Not when your renewal letter shows up in the mail. Now.
Because the earlier you start planning, the more options you have—whether that’s extending your amortization to keep payments manageable, shopping around for a better rate, or refinancing to consolidate high-interest debt.
The earlier you know, the more control you have.
What This Means for You
If you’re renewing in 2026 or 2027:
- Start the conversation now. Don’t wait for your renewal letter.
- Know your payment. What will it actually be? Can you afford it?
- Explore your options. Can you extend your amortization? Switch lenders? Refinance to consolidate debt?
If you’re on a variable rate:
- Don’t count on further cuts. The Bank of Canada is near the end of its cutting cycle.
- The good news: Rate hikes are probably off the table for 2026.
- Consider locking in if you want payment certainty.
If you’re feeling budget pressure:
- You’re not alone. 60% of homeowners expecting higher payments are cutting spending too.
- The mortgage is crowding out other expenses—travel, dining out, savings.
- The earlier you plan, the more control you have over the outcome.
If you’re trying to buy in Toronto:
- Affordability is barely improving, even with stable rates.
- You’ll need 65% of your household income to qualify for a typical home.
- Get pre-approved now to understand your buying power before spring market competition heats up.
Want to know what your 2026 or 2027 renewal will look like? Text me your mortgage balance, current rate, and renewal date: 249-480-1249
I’ll send you a 60-second analysis.