July 20, 2026 | Signs of Improvement?

Happy Monday Morning!

As expected, the Bank of Canada held rates this past week.

“After a year of weakness, Canada’s economy is showing signs of improvement,” the bank said in its monetary policy report. “Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high.”

What is perhaps most interesting, is the BoC forecasting $75 brent crude prices, with prices currently hover around $88/ barrel and climbing as tensions in the middle east reach a boiling point. Based on the BoC’s math, Brent at $80-85 adds 0.3 percentage points to inflation.

In other words, it’s becoming increasingly possible the BoC will raise rates into an energy crisis, and the sharpest house price correction in 40 years. If so, we believe this would be a significant policy error.

From a housing perspective, the Bank of Canada is forecasting an increase in residential investment, despite what they note as, “a large stock of unsold small condominiums in Toronto and Vancouver.”

You don’t say.

We’re not sure what data the Bank of Canada is looking at, but there’s nothing we’re seeing on the ground that suggests residential investment (new developments) will pick up anytime soon.

Developers are sitting on a mountain of unsold inventory, which has prompted bailouts from various levels of government. This wash out will take several years to play out.

Remember, there are nearly 12,000 unsold units just in Metro Vancouver alone.

As our commercial lender said, “If you want lower prices, speed up the court system. There’s a backlog of insolvencies just waiting to be processed.”

In other Bank of Canada conundrums, CPI rental inflation remains elevated, sitting at 3.5%.

We find this perplexing considering rents have been contracting nationally for over two years now. Average asking rent for all property types in Canada was $2,033 in June, down 4.3% year-over-year, the 21st consecutive month of annual decline. Per Rentals.ca, rents have declined 6.9% over the past two years, falling to their lowest June level in four years.

The Banks CPI rental inflation basket has some obvious flaws. We believe downwards pressure on rents seems like the obvious conclusion assuming tepid population growth continues, with a record stock of purpose built rental completing over the next few years.

While the Bank is right to be worried about oil prices, they definitely don’t have to worry about shelter inflation.

The resale market remains challenged. National house prices were down 3.6% on a year-over-year basis in June, and have now dropped 20% since the peak, and 36% in real terms (inflation adjusted). The biggest decline in 40 years.

However, on a more positive note, home sales appear to have bottomed and are slowly ticking up at the same time new listings fall. There were 4.8 months of inventory nationally at the end of June 2026, unchanged from May, and the lowest level so far in 2026. This is slighly below the long term average of 5 months.

In other words, inventory levels are showing signs of peaking and stabilizing. Yes, new listings are still high (the second highest June in 20 years) but many of these “new listings” are just sellers recycling the same inventory. For example, a seller listing at $1M for 30 days, cancelling the listing, and bring it back on the MLS as a new listing at $950K. Rinse and repeat.

We likely haven’t bottomed yet, but there are early signs we might be getting closer to the end than the beginning. A government bailout doesn’t hurt either.

Of course, if the Bank of Canada follows the oil markets higher, then all bets are off.

Let’s watch.

Steve Saretsky July 20th, 2026

Posted In: Steve Saretsky Blog

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