Housing Market  Momentum Persists in June, and the Bank of Canada Held Rates Steady

Canada’s housing market gained meaningful momentum in May and June. The number of home sales recorded over Canadian MLS® Systems edged up a further 0.5% on a month-over-month basis in June 2026. This builds on the 5.5% jump recorded in May and the 0.9% increase in April, placing national activity some 7% above its March level.

As CREA Senior Economist Shaun Cathcart noted, while May and June marked the first significant increases in headline sales activity in 2026, underlying market conditions have been improving for several months. Buyers and sellers are increasingly finding common ground on pricing, reflected in firmer sale-to-list price ratios, shorter selling times, and a marked slowdown in price declines. These developments suggest that the period of market adjustment is largely behind us and that home prices are beginning to find a floor.

In other news, the Bank of Canada announced this morning that it would hold the overnight rate steady at 2.25% for the sixth consecutive time. The press release stated that Canada’s economy was showing signs of improvement and inflation is projected to ease gradually from its recent spike. There are still important risks and uncertainties related to the war in the Middle East and US trade policy.

The bottoming in home prices is far more evident in single-family homes than condos, which are still in excess supply, especially in Ontario, which has suffered a marked decline in population with the ouster of many temporary workers and international students and the decline in new permanent residents. The hardest hit have been the steel and aluminum sectors, forest products, and automobiles–all subject to sizable US tariffs.

Since the BoC’s April Monetary Policy Report (MPR), global economic prospects have been dented by higher oil prices stemming from the Middle East conflict. At the same time, the development of artificial intelligence (AI) is supporting economic activity in an increasing number of countries. Oil prices are still below their April peak, but the situation in the Middle East remains volatile. The path of global inflation depends heavily on how the conflict unfolds.

The central bank added that financial conditions in Canada have eased since April and global equity markets have been buoyant. US bond yields have risen, while those in Canada are little changed. This differential has contributed to the depreciation of the Canadian dollar.

“Following GDP growth of 0.7% in 2026, the Bank projects the economy will grow by 1.8% in both 2027 and 2028. As the recovery proceeds, economic slack will be gradually absorbed.”

CPI inflation rose further to 3.2% in May, mainly because of higher gasoline prices linked to the war in the Middle East. Excluding gasoline, inflation was 2.2%, and measures of core inflation remained near 2%. Near-term inflation expectations are sensitive to changes in gasoline prices, but longer-term inflation expectations remain well anchored. War-related cost pressures are still working their way through some consumer prices but are being offset by downward pressure on other prices from continued economic slack. CPI inflation is expected to remain elevated in June and then ease gradually in the coming months, returning to around 2% in early 2027, although this forecast depends on the path of oil and gasoline prices. Inflation is forecast to average around 2% in 2027 and 2028, albeit with some monthly fluctuations because of base-year effects.

Governing Council judges the current policy rate remains appropriate to sustain the economic recovery and bring inflation back to the 2% target, in line with the MPR projections. Uncertainty is still high. Governing Council will continue to assess the strength of the Canadian economy and the outlook for inflation, and is prepared to adjust monetary policy as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.

Pent-up demand for housing, accumulated over the past two years, is starting to intersect with improved affordability and lower home prices, particularly in Ontario and British Columbia, where price corrections have been most pronounced. As confidence gradually returns, this combination could generate a sustained increase in sales activity through the second half of the year.

The single-family home market, where end-user demand remains strong, is leading the market. The condominium sector, particularly smaller investor-oriented units in major urban centers, continues to face headwinds from higher carrying costs, softer rental markets, and diminished investor participation. Even so, as financing conditions improve and excess inventory is absorbed, activity in the condo market should gradually strengthen.

Taken together, stabilizing prices, balanced market conditions, and rising sales suggest that Canada’s housing market is entering a healthier and more sustainable phase. While regional and segment-specific challenges remain, the broader national trend shows the market regaining its footing and building momentum through the summer.

New Listings

New listings fell back 1.3% on a month-over-month basis in June 2026, marking a second straight decline.
There were 208,578 properties listed for sale on all Canadian MLS® Systems at the end of June 2026, up just 0.6% from a year earlier and 0.8% above the long-term average for that time of the year.

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 remains close to but slightly below the long-term average for this five-month measure. Based on one standard deviation above and below that long-term average, a sellers’ market would be below 3.6 months, and a buyers’ market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) held steady from May to June, marking the first time the measure has not declined month over month since January 2025.

Taken together, moderating price declines, stable listings, and inventory levels near historical norms suggest that housing market conditions are becoming less challenging for both buyers and sellers. As confidence improves and borrowing costs continue to ease, sales activity could strengthen further in the second half of the year.

Bottom Line

The brief opening of the Strait of Hormuz triggered a sharp decline in oil prices and market-driven interest rates. Alas, the opening was short-lived as the war resumed in spades. So far, oil price increases have been muted, but uncertainty abounds. President Trump vows to escalate attacks until Iran relents on Hormuz.

US CPI inflation data for June were released this week, showing a decline in month-over-month inflation. Treasuries rose after a report on producer prices reinforced optimism that US inflation has peaked and may curb the need for the Federal Reserve to raise interest rates. The Treasury market had its best day in three weeks Tuesday after a report on consumer prices showed more deceleration than economists had estimated.

The rally trimmed yields across maturities by as much as three to four basis points for short-dated tenors, which are more sensitive to Fed rate adjustments.

We concur with economists surveyed by Bloomberg who expect the Bank of Canada to hold rates at the current level for the rest of the year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation Rose to 3.2% in May as Core Inflation Remained Subdued

Higher gasoline prices pushed Canadian inflation to a more than two-year high, while underlying inflation pressures showed little sign of accelerating, with core measures broadly unchanged and price gains less broad-based.

Canada’s annual inflation rate rose to 3.2% in May, Statistics Canada reported Monday, marking its highest level since December 2023. The increase exceeded economists’ expectations, with Bloomberg’s survey consensus forecasting a 3.0% gain, up from 2.8% in April. On a monthly basis, consumer prices climbed 1.0%, also coming in above forecasts.

Despite the headline surprise, measures of underlying inflation suggest price pressures remain relatively contained as the economy continues to adjust to slower population growth and the adverse effects of U.S. trade policies on exports.

Excluding food and energy, inflation accelerated to 1.6% year-over-year, while the consumer price index excluding gasoline increased 2.2%. The average of the Bank of Canada’s preferred core inflation measures—the trim and median indexes—held steady at 2.1%. However, on a three-month annualized basis, both gauges picked up sharply to 2.3%, indicating some recent firming in underlying inflation trends.

Financial markets initially interpreted the report as supportive of tighter monetary policy. The Canadian dollar strengthened briefly before reversing course, trading at US$0.7062 per Canadian dollar. Meanwhile, the two-year Government of Canada bond yield rose roughly two basis points to 2.79%. Overnight index swaps continue to price in nearly one quarter-point Bank of Canada rate increase by year-end.

The conflict in the Middle East continued to drive higher energy costs in May, with gasoline prices rising 33% from a year earlier, according to Statistics Canada. Air transportation prices also surged, increasing 7.4% after falling 1.7% in April. Airlines are experiencing higher operational costs, notably for jet fuel.

Since then, easing tensions between the United States and Iran has helped push oil prices lower, with Canadian gasoline prices retreating to their lowest levels since mid-March. If sustained, the decline should provide some relief to consumers and help moderate headline inflation in the months ahead. Earlier this month, Bank of Canada Governor Tiff Macklem said he expects inflation to remain near 3% in the near term before gradually returning to the central bank’s 2% target.

Gasoline prices increased 33.2% year-over-year in May, accelerating from a 28.6% gain in April. The escalation was largely driven by supply concerns linked to the conflict in the Middle East, particularly disruptions associated with the closure of the Strait of Hormuz. These uncertainties pushed gasoline prices higher for a third consecutive month. As a result, Canadians paid the highest prices at the pump since June 2022, when Russia’s invasion of Ukraine triggered similar supply fears and a sharp increase in global energy costs.

Four of the eight major components accelerate in May

Prices for fresh fruit rose at a faster pace year over year in May (+5.3%) compared with April (-0.5%). Berries and grapes mostly drove the acceleration. On a year-over-year basis, prices for fresh vegetables increased 9.0% in May, following a 4.1% rise in April. The upward movement was attributed to higher prices for broccoli, cauliflower, tomatoes and lettuce. Tomato prices rose 45.2% in May due to supply contractions in Mexico, stemming from poor weather and a reduction in planted acreage following the implementation of US tariffs.

On a month-over-month basis, prices for fresh vegetables rose 5.5% in May following a decline of 3.9% in April. This is the largest monthly increase in May since 2008 and is attributed to reduced supply and higher fuel costs.

Collectively, higher prices for fresh fruit and fresh vegetables contributed to an acceleration in inflation for food purchased from stores, rising 4.3% year over year in May, the 16th consecutive month it has outpaced headline inflation on a year-over-year basis. Food prices will continue to rise, reflecting a 40% increase in nitrogen fertilizer prices during the planting season.

Shelter inflation continued to moderate in May, with prices rising 1.7% year-over-year, down slightly from 1.8% in April. The homeowners’ replacement cost index fell 2.5%, marking its 13th consecutive decline. Other owned accommodation expenses, including real estate commissions, decreased 2.1% following a 2.7% drop in April. Meanwhile, mortgage interest costs edged lower, declining 0.2% year-over-year compared with a 0.1% decline in April, extending a 33-month trend of slowing mortgage cost inflation.

Rent inflation also eased modestly, rising 3.5% from a year earlier versus 3.6% in April, the slowest pace of rent growth since January 2022.

Price growth for durable goods was unchanged at 1.9% year-over-year in both April and May. A notable source of upward pressure came from computer equipment, software, and supplies, where prices rose 3.9% after declining 0.2% in April. Higher costs for key components such as random-access memory (RAM) and solid-state drives (SSDs), driven by strong demand from artificial intelligence data centres and limited production capacity, contributed to the increase.

Offsetting some of these gains, price growth slowed across several other durable goods categories. Increases were more modest for tools and household equipment (+1.1%) and passenger vehicles (+2.5%), while prices for household appliances fell 5.7% year-over-year, a steeper decline than previously recorded.

Bottom Line

Today’s inflation report reinforces our view that higher gasoline prices will temporarily boost headline inflation while further eroding household purchasing power. However, these energy-driven increases, largely tied to geopolitical tensions, are unlikely to trigger a broader surge in underlying inflation. While food and transportation continue to account for a disproportionate share of price growth, inflationary pressures across the economy are generally moderating amid a softer labour market and slowing domestic demand.

May data support our base-case scenario that the Bank of Canada will remain on hold through the remainder of 2026. Policymakers will continue to closely monitor incoming inflation data and stand ready to tighten policy if price pressures broaden and become more persistent, but for now, underlying inflation trends remain consistent with a patient, wait-and-see approach.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Market Regains Momentum, Providing a Strong Handoff into Summer

Canada’s housing market gained meaningful momentum in May, with sales posting their strongest monthly increase of the year and leading indicators pointing to further improvement in June. After months of uncertainty, the market appears to be transitioning from stabilization to recovery as lower borrowing costs, easing energy prices, and improved affordability begin to draw buyers back into the market.

As CREA Senior Economist Shaun Cathcart noted, while May marked the first significant increase in headline sales activity in 2026, underlying market conditions have been improving for several months. Buyers and sellers are increasingly finding common ground on pricing, reflected in firmer sale-to-list price ratios, shorter selling times, and a marked slowdown in price declines. These developments suggest that the period of market adjustment is largely behind us and that home prices are beginning to find a floor.

The next phase of the housing cycle may now be taking shape. Pent-up demand, accumulated over the past two years, is starting to intersect with improved affordability and lower home prices, particularly in Ontario and British Columbia, where price corrections have been most pronounced. As confidence gradually returns, this combination could generate a sustained increase in sales activity through the second half of the year.

The single-family home market, where end-user demand remains strong, is leading the market. The condominium sector, particularly smaller investor-oriented units in major urban centres, continues to face headwinds from higher carrying costs, softer rental markets, and diminished investor participation. Even so, as financing conditions improve and excess inventory is absorbed, activity in the condo market should gradually strengthen.

Taken together, stabilizing prices, balanced market conditions, and rising sales suggest that Canada’s housing market is entering a healthier and more sustainable phase. While regional and segment-specific challenges remain, the broader national trend shows the market regaining its footing and building momentum through the summer.

New Listings

New listings declined by 1.0% in May and were down 7.9% from a year earlier, helping keep the national housing market in balance despite still-modest sales activity. Overall, Canada’s housing market can best be described as stable, although conditions vary considerably by region and property type.

Notable pockets of weakness remain in the Greater Toronto Area, Southwestern Ontario, and parts of British Columbia, particularly in the condominium segment. Smaller investor-oriented condos continue to face the greatest challenges. Much of the exceptional demand for these properties during the pandemic years was driven by investors, but that source of demand has weakened considerably. Higher carrying costs, softer rental markets, and slower population growth following significant reductions in immigration targets have all reduced the attractiveness of investment properties.

At the end of May, there were just over 200,000 properties listed for sale across Canadian MLS® Systems on a non-seasonally adjusted basis. That was essentially unchanged from a year earlier and 2.8% below the long-term average for this time of year, suggesting that supply remains relatively well contained at the national level.

The months-of-inventory measure fell to 4.8 months in May from 5.1 months in each of the previous three months. This is very close to the long-term average of five months and is consistent with a balanced national market. Historically, inventory levels below 3.6 months have signalled seller’s market conditions, while readings above 6.4 months have been associated with buyer’s markets.

Taken together, declining new listings, stable inventory, and moderating price declines suggest that Canada’s housing market is gradually finding equilibrium. While certain regions and market segments continue to face adjustment pressures, national conditions have become considerably more balanced than they were earlier in the cycle.

Home Prices

The Canadian housing market continues to show signs of stabilization. In May, the National Composite MLS® Home Price Index (HPI) edged down just 0.1% from April, marking the smallest monthly decline since October 2025. This modest movement is consistent with improving market fundamentals, including firmer sale-to-list price ratios and shorter average days on the market. Stabilizing prices represent an important turning point and could help restore buyer confidence after an extended period of uncertainty.

On a year-over-year basis, the non-seasonally adjusted National Composite MLS® HPI was down 4.2% from May 2025. While still negative, this was the smallest annual decline recorded so far in 2026, suggesting that downward price pressures are gradually easing.

Supply conditions also remain balanced. At the end of May, just over 200,000 properties were listed for sale across Canadian MLS® Systems, virtually unchanged from a year earlier and 2.8% below the long-term average for this time of year.

Taken together, moderating price declines, stable listings, and inventory levels near historical norms suggest that housing market conditions are becoming less challenging for both buyers and sellers. As confidence improves and borrowing costs continue to ease, sales activity could strengthen further in the second half of the year.

Bottom Line

Potential homebuyers faced a challenging backdrop in May as oil prices and interest rates moved higher. Conditions appear more favourable heading into June. News that the Strait of Hormuz is expected to reopen, combined with falling oil prices and easing bond yields, should provide support for housing activity. If a broader agreement between the United States and Iran is reached in the coming weeks, oil prices could decline further, reducing inflation concerns and removing an important headwind for home sales.

The Bank of Canada’s next policy decision is scheduled for July 15. Before then, policymakers will receive several key economic reports, including the May Consumer Price Index (CPI) data and the May Labour Force Survey. Assuming geopolitical tensions continue to ease and energy markets stabilize, the Bank is likely to continue looking through temporary price pressures rather than responding to short-term fluctuations in inflation.

Inflation remains the key risk. Recent U.S. inflation data came in stronger than expected, raising concerns that price pressures could prove more persistent than anticipated. If upcoming Canadian CPI data were to show a similar acceleration, the Bank of Canada would have to consider whether current policy settings remain sufficiently restrictive. While weakness in the labour market and soft housing activity argue against additional tightening, it might be considered, but is likely to be dismissed.

Globally, central banks remain divided. Japan, Norway, and Australia have recently raised interest rates, while the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Canada all cut rates during 2025 and have remained on hold so far this year.

The minutes from the Bank of Canada’s April 29 meeting underscore the Governing Council’s concern about inflation. Policymakers seriously debated the possibility of a rate hike before ultimately deciding to leave rates unchanged. The close nature of that decision highlights the Bank’s continued vigilance and suggests that inflation developments will remain one primary driver of monetary policy in the months ahead. The other driver is economic weakness, which will likely keep the central bank on hold for the remainder of this year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Bank of Canada Holds Policy Rate Steady

Today, the Bank of Canada once again held the policy rate at 2.25%. This is the bottom of the Bank’s estimate of the neutral overnight rate, where monetary policy is neither expansionary nor contractionary. With inflation hovering at 2.8% and core inflation falling to 2.0% (as of April data), the Governing Council sees the current overnight rate as appropriate, as the Bank continues to look through the inflationary impact of the war in Iran. The war is in its fourth month, and oil prices and interest rates have risen considerably as a result. The war is disrupting supply chains, weakening economic activity and pushing up inflation. At the same time, the US administration continues to propose new tariffs, and the future of CUSMA remains uncertain.

CUSMA negotiations are underway, but they are unlikely to go on beyond the July 1 mandatory date for the formal review of the pact required by the treaty. On that date, the U.S., Canada, and Mexico are each supposed to declare whether they want to renew the deal for another 16 years (out to 2036), renegotiate it, or decline to renew. The three countries are set to miss the July 1 renewal milestone, with negotiations expected to stretch on for months or potentially years. Missing the date does not kill the deal. If the three don’t agree to a full 16-year extension, the agreement stays in force and shifts into a mechanism of rolling annual reviews that can continue for up to a decade. The treaty doesn’t formally expire until July 1, 2036, unless a party withdraws entirely. US Trade Representative Jamieson Greer said that on July 1, “I don’t think we’re going to renew it outright, but we’ll engage in the separate negotiations” — explicitly signalling the date is a starting point, not a hard conclusion. Dominic LeBlanc, the minister responsible for US trade, met with Greer in Washington and afterward suggested that July 1 “shouldn’t be seen as a crucial date.” Mexican and US officials say the scope and complexity of the issues — auto rules of origin, the 50% Section 232 steel/aluminum tariffs, and other disputes — make resolution by July 1 unlikely.

While first-quarter GDP growth in Canada showed a small contraction, economic growth has been solid in the US, boosted by consumption and AI-related investment. In the euro area, growth is subdued, with higher energy prices weighing on activity. China’s economic growth continues to be supported by strong exports, while oil imports have slowed substantially. Oil demand destruction is evident as China has chosen to limit energy use and draw down inventories.

Financial conditions in Canada have eased since the April Monetary Policy Report (MPR). Global equity markets have been buoyant, and bond yields, though volatile, have generally trended higher. The Canadian dollar has weakened against the US dollar and other currencies.

Canada’s economy contracted in the final quarter of last year. It weakened a bit further in Q1, but incoming data suggest that the first-quarter figure was weighed down by the 10% surge in imports, which has already reversed in the newly released April merchandise trade data. The flash estimate for April GDP is a more solid 0.4% quarter-over-quarter level (or 1.6% at an annual rate). The central bank expects growth to rebound in Q2, but even so, the economy is expected to remain in excess supply.

As expected, Canadian CPI inflation rose to 2.8% in April. Measures of core inflation declined to about 2%, and the share of CPI components growing above 3% is close to its historical average. Food price inflation moderated but remains high, and shelter inflation continued to slow. With global oil prices still elevated—roughly $10 per barrel above our April MPR assumptions—total inflation is expected to hover around 3% in the near term before gradually easing towards 2%.

In other news, the US CPI inflation report for May was released this morning:

• US inflation accelerated again in May as the war in Iran pushed up energy prices, outpacing wages for a second straight month. The US consumer price index climbed 4.2% from a year earlier, the most since early 2023.
• Core CPI, which excludes food and energy, increased 0.2% from April, a touch below expectations and taking some of the sting out of the Fed debate.
• The energy index rose 3.9% in May, accounting for over 60% of the monthly all-items increase.
• But other categories saw slower gains or outright declines: Grocery prices rose 0.1%, while transportation services, health insurance and new vehicle prices fell.
• The breadth of price increases also declined, providing another sign that inflation has likely peaked.
• The S&P 500 opened lower while Treasuries and the dollar wavered on the news.

Overall, today’s US CPI report sent a clear signal that consumers are pulling back on nonessential spending, pushing back against businesses’ attempts to raise prices. This should ease fears of Fed rate hikes following the blowout May payrolls report. Bloomberg News suggests that they still expect the Fed to hold rates steady at the June 12 meeting and to cut the overnight fed funds rate by 25 basis points in the fourth quarter of this year.

Bottom Line

The Bank of Canada has shown its willingness to bolster the Canadian economy amid unprecedented trade uncertainty and a record oil price shock. Ottawa, too, has taken actions to reduce the burden of higher prices on Canadians by temporarily eliminating the excise tax on oil. PM Carney is also working to diversify Canada’s trade away from the US, a strategy that has thus far been remarkably successful. As the charts below show, Canadian export diversification is gaining momentum. In addition, goods imports are also shifting away from the US to the rest of the world.

We continue to maintain the view that the Bank of Canada will keep rates steady this year. If inflation broadens and accelerates, rate hikes are possible, but that is not our baseline forecast. The Bank of Canada will be reluctant to tighten into housing market weakness. While housing activity strengthened in May, momentum is muted, and affordability improvements are likely to taper off in the coming months as trade tensions and the war keep oil prices and interest rates elevated.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

So Much For Recession Worries, The May Jobs Report For Canada Was A Blockbuster

Canadian employment surged 87,800 in May, the strongest reading since 2024. Today’s Labour Market Survey dispels recession concerns, but leaves the Bank of Canada open to a possible rate hike later this year or next if inflation remains troubling. The Canadian economy continues to show resilience in the face of tariffs and oil price increases.

The headline job gain, combined with a 3,800 rise in the size of the labour force, drove the unemployment rate down three basis points to 6.6%. The jobless rate is still in the 6.5%- 7.0% range seen over the past year. The employment rate rose 0.2 percentage points to 60.7%.

The report’s details were also stronger than expected. The unemployment rate for youth declined 0.9 percentage points to 13.4%. The rate also fell among core-aged women (-0.4 percentage points to 5.5%) and core-aged men (-0.4 percentage points to 5.7%).

Employment increased in several industries, most notably in construction (+27,000; +1.7%), information, culture and recreation (+19,000; +2.3%), transportation and warehousing (+19,000; +1.7%) and accommodation and food services (+17,000; +1.5%). On the other hand, employment decreased in wholesale and retail trade (-35,000; -1.2%).

Hiring also rose in manufacturing in May (+15,000; +0.8%). Hiring in this industry was little changed compared with 12 months earlier, but down 44,000 (-2.3%) from January 2025. The manufacturing sector has faced heightened economic uncertainty since early 2025, driven by U.S. tariff policies.

Employment rose in Ontario (+42,000; +0.5%), British Columbia (+25,000; +0.9%), Alberta (+14,000; +0.5%), and Prince Edward Island (+1,200; +1.3%), while it fell in Saskatchewan (-6,100; -1.0%).

Average hourly wages among employees increased 3.0% (+$1.10 to $37.24) on a year-over-year basis in May, following growth of 4.5% in April (not seasonally adjusted).

Hiring gains in May were the first significant job growth since November 2025. The increase in May follows a net decline of 112,000 (-0.5%) over the first four months of 2026. On a year-over-year basis, employment was up by 147,000 (+0.7%) in May.

The number of people working full-time rose by 154,000 (+0.9%) in May. The increase in the month offsets a downward trend observed from January to April, in which the number of full-time workers fell by 156,000 (-0.9%). In May, part-time employment decreased by 66,000 (-1.7%).

Employment rose among employees in both the private sector (+56,000; +0.4%) and the public sector (+20,000; +0.4%) in May. The number of self-employed workers was little changed.

Since the spring of 2024, the unemployment rate has remained above its average (6.0%) observed from 2017 to 2019, prior to the COVID-19 pandemic. The unemployment rate reached a recent peak of 7.1% in August and September 2025.

As employment picked up in May, the job-finding rate ticked up, with just over one-quarter (26.3%) of people who were unemployed in April found work in May. This was up 3.7 percentage points compared with the same period last year but remained below the pre-pandemic average for the corresponding months from 2017 to 2019 (31.5%). At the same time, the layoff rate remained relatively stable at 0.6%, little changed compared with a year earlier and in line with the pre-pandemic average (not seasonally adjusted).

The unemployment rate in the Toronto census metropolitan area fell 1.1 percentage points to 6.8% in May, the lowest level since November 2023. The rate in May 2026 was down from a recent peak of 9.0% in May 2025 and July 2025. Recent declines in Toronto have brought its unemployment rate closer to the rate observed in Montréal (6.5%) and Vancouver (6.4%) in May 2026.

The jobless rate also fell in Montréal (-1.2 percentage points) in May, largely offsetting the increase recorded in the previous month. In Vancouver, the unemployment rate decreased 0.6 percentage points to 6.4%. In both Montréal and Vancouver, the unemployment rate in May was virtually unchanged year over year.

In separate news, US hiring also surged in May, boosting bets on a Fed rate hike. Stocks and bonds in Canada and the US sold off on the news. US job growth topped all forecasts in May, and the unemployment rate held steady at 4.3%, offering the clearest sign yet that the labour market may be breaking out of a prolonged period of lacklustre hiring.

Nonfarm payrolls increased 172,000 last month, and hiring in March and April was stronger than previously reported, according to Bureau of Labour Statistics data out Friday. Taken together, the figures marked the strongest three-month advance in more than two years.

Bottom Line

These blockbuster jobs reports, accompanied by inflation risk stemming from high tariffs and the war in Iran blocking the Strait of Hormuz, are troubling for both stocks and bonds.

The relative weakness of the Canadian labour market will discourage the Bank of Canada from tightening monetary policy too soon. To be sure, inflation remains a risk as higher energy costs become embedded in the price of a wide array of goods and services. The Bank will be reluctant to respond with rate hikes over the next few announcement dates.

Trade negotiations are accelerating as the future of CUSMA is determined. It is hard to imagine the Bank of Canada tightening in the face of such a weak housing market. Early evidence suggests housing activity picked up in May, but the sector remains vulnerable to rising interest rates. Although both the Fed and the BoC have remained on the sidelines so far this year, market-driven interest rates have risen considerably owing to the sharp rise in inflation pressures. Housing is a much larger component of economic activity in Canada than in the US. The Bank of Canada, therefore, will be particularly leery of tightening monetary policy. We hold to the view that central bank rate hikes in Canada and the US are unlikely this year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Strengthened in April As The Month Progressed

The number of home sales recorded on Canadian MLS® Systems was up 0.7% month over month in April 2026. According to Shaun Cathcart, Senior Economist with the Canadian Real Estate Association (CREA), “While home sales were up only modestly from March to April, the small increase reflected a slow start to the month with a stronger handoff into May, alongside falling days on the market and stabilizing prices. This latest bout of global economic uncertainty and higher mortgage rates suggests the previously expected rebound in housing markets this year will remain muted. Still, it does not mean there will be no upward momentum at all.” Indeed, housing activity appears to be improving despite the war in Iran.

New Listings

New listings jumped 4.1% month-over-month in April, marking the traditional starting point for the spring market.

With the gain in new supply outpacing sales within the month of April, the national sales-to-new listings ratio eased to 45.6% compared to 47.1% in March. That said, this could reflect a timing issue between when properties are listed and when they eventually sell. The long-term average for the national sales-to-new listings ratio is 54.8%, with readings generally between 45% and 65% that are consistent with balanced housing market conditions.

There were 187,647 properties listed for sale on all Canadian MLS® Systems at the end of April 2026, up 2.2% from a year earlier but 6.1% below the long-term average for that time of the year.

There were 5.2 months of inventory nationwide at the end of April 2026, up slightly from February and March, driven by the influx of new spring listings. This remains very close to the long-term average for the five-month measure. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

In April, the National Composite MLS® Home Price Index (HPI) experienced a slight decrease of just 0.1% on a month-over-month basis, marking the smallest decline since October 2025. This trend corresponds with tightening sale-to-list price ratios and a reduction in days on the market in recent months. Price stabilization is a crucial milestone that could encourage buyers to re-enter the market in greater numbers.

On a year-over-year basis, the non-seasonally adjusted National Composite MLS® HPI dropped by 4.2% compared to April 2025, which is the smallest decline recorded in 2026 so far.

Bottom Line

With geopolitical tensions mounting and the tenuous ceasefire in Iran, some potential homebuyers have postponed their purchase decisions. While there remains considerable pent-up demand, and home prices in many regions have fallen sharply, especially in Ontario, which was hardest hit by the tariffs last year, along with the ongoing condo supply glut. These issues are unlikely to be resolved in the near term, so housing market weakness will remain a drag on overall economic activity.

Compounding these concerns is the surge in oil prices. Gasoline prices–a very visible component of consumer spending–have skyrocketed, causing supply disruptions in nitrogen fertilizer, plastics, aluminum and helium. Price pressures will no doubt mount, leading central banks to be concerned about potential stagflation.

Next Monday, we will see the CPI data for March. At this point, the Bank of Canada is likely to continue to “look through” the price pressures, hoping the war will end very soon.

Following the worse-than-expected US inflation data, the Canadian CPI for April will be released on May 29. If it confirms the 3.8% y/y US inflation, the Bank of Canada will seriously consider a 25 bps rate hike despite weakness in the labour market. The Bank is mindful of the negative impact of higher rates on already weak housing activity; this reduces the chances of a rate hike, but it cannot be ruled out. Among major advanced economies, central banks have already hiked interest rates in Japan, Norway and Australia. In contrast, the Fed, ECB, Bank of England, and Bank of Canada all cut rates in 2025 and have been on hold so far this year.

Judging from the recently released minutes of the last BoC meeting, the Governing Council seriously considered a rate hike at their April 29th meeting. It was a close call then, a harbinger of the central bank’s inflation concerns.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Weak Jobs Report in April drives Unemployment Rate Up to 6.9%

Employment in Canada edged down by 17,700 in April, following a 14,000 gain in the prior month, missing the consensus forecast for a 15,000 increase. On a year-over-year basis, employment in April was up by 67,000 (+0.3%), but recorded a net decline of 112,000 (-0.5%) over the first four months of 2026.

The result marked a second straight month of limited movement after February’s sharp 84,000-job decline. Full-time employment fell by 47,000, while part-time positions increased by 29,000. Employment levels were broadly unchanged across the private and public sectors and among self-employed workers.

Employment varied little across major age groups in April. The unemployment rate rose among youth aged 15 to 24 to 14.3% and among core-aged men to 6.1%. Regionally, employment declined in Quebec, Newfoundland and Labrador, Saskatchewan, and New Brunswick, while Ontario added 42,000 jobs. Meanwhile, the employment rate slipped 0.1 percentage points to 60.5%.

Average hourly wages among employees were up 4.5% (+$1.64 to $37.77) on a year-over-year basis in April, following growth of 4.7% in March (not seasonally adjusted).

In April, the unemployment rate rose 0.2 percentage points to 6.9%, as more people searched for work (+51,000; +3.4%). The unemployment rate has increased 0.4 percentage points since January 2026, but remained below the recent peak of 7.1% observed in August and September of 2025. On a year-over-year basis, the unemployment rate was virtually unchanged in April 2026.

The proportion of unemployed people who had been continuously searching for work for 27 weeks or more—considered long-term unemployment—was 22.5% in April. This proportion was little changed both in the month and compared with 12 months earlier. However, it remained significantly above the pre-COVID-19 pandemic average of 17.1% observed from 2017 to 2019.

At the same time, the monthly layoff rate (0.6%) in April remained in line with the pre-pandemic average, showing no recent elevation (not seasonally adjusted).

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—rose by 0.1 percentage points to 65.0% in April as more people were in the labour force searching for work. The increase was concentrated among core-aged people, whose labour force participation rate rose 0.3 percentage points to 88.5%.

On a year-over-year basis, the overall labour force participation rate was down 0.3 percentage points in April. This largely reflected population aging, which has put downward pressure on the labour supply as more individuals have entered retirement. Among core-aged people, the labour force participation rate was up 0.3 percentage points year over year, while for youth aged 15 to 24, it was little changed.

On a month-over-month basis, employment decreases in April were concentrated in information, culture and recreation (-25,000; -2.8%), construction (-16,000; -1.0%), and in ‘other services’ (-13,000; -1.6%), an industry which includes repair and maintenance as well as personal services.

Employment change by industry, April 2026

On the other hand, employment increased in business, building and other support services (+22,000; +3.2%), health care and social assistance (+18,000; +0.6%) and in accommodation and food services (+13,000; +1.1%).

On a year-over-year basis, employment was little changed across most industries in April, with the notable exception of health care and social assistance, which was up 119,000 (+4.1%) over the period.

The cumulative decline in employment since January comes as US tariffs continue to loom over businesses and the war in Iran heightens global uncertainty, two forces expected to shape the Canadian economy this year. With the 50% rise in oil prices, demand destruction is already well underway.

Another important fundamental in the labour market is the rapid development of AI, which is already causing enormous layoffs, especially in the U.S. See the chart below.

Bottom Line

In other news, the US employment report was also released this morning, showing the strongest two-month gain since 2024.

US employers added more jobs than expected for a second month, and the unemployment rate held steady in April, indicating the labour market is holding up despite rising energy costs sparked by the war in Iran.

Nonfarm payrolls rose 115,000 last month after an even bigger surge in March, marking the strongest two-month increase since 2024, according to Bureau of Labour Statistics data out Friday. The unemployment rate was unchanged at 4.3%. The report showcases a labour market that may be gaining momentum after near-zero job growth last year. It showed hiring advanced across a variety of sectors, and follows other data indicating layoff activity remains low.

The relative weakness of the Canadian labour market will discourage the Bank of Canada from tightening monetary policy too soon. To be sure, inflation remains a risk as higher energy costs become embedded in the price of a wide array of goods and services. The Bank will be reluctant to respond with rate hikes over the next few announcement dates.

Trade negotiations will accelerate in the coming months as the future of CUSMA is determined. It is hard to imagine the Bank of Canada tightening in the face of such a weak housing market.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian Inflation Surges to 2.4% Y/Y on Oil Price Shock

The headline inflation rate in Canada surged as expected with the War in Iran and the resulting oil price shock. The inflation rate hit 2.4%, up from 1.8% in February, tying for the highest in a year but a bit below market expectations of 2.5%. The surge reflected the initial impact of the war in the Middle East on Canadian consumer prices, as disruptions to tankers from the Persian Gulf triggered energy shortages worldwide. The consumer energy inflation swung to 3.9% from the deflation rate of 9.3% in the previous month, enough to raise transportation inflation to 3.7% (vs -0.8% in February). In turn, prices accelerated for shelter (1.7% vs 1.5%) and recreation and education (2.6% vs 0.5%). Meanwhile, base effects from the reintroduction of GST/HST taxes continued to impact food inflation, which fell to 4% from the 5.4% in February. The CPI rose 0.9% from the previous month, driven by a 21.2% surge in gasoline prices. Excluding gasoline, the CPI rose at a slower year-over-year pace in March (+2.2%) than in February (+2.4%). The CPI was up 0.9% month-over-month in March. On a seasonally adjusted monthly basis, the CPI increased 0.5%.

Higher energy prices drive up inflation

Energy prices rose 3.9% on a year-over-year basis in March, after decreasing 9.3% in February. On a monthly basis, energy prices rose 13.1% in March.

Higher gasoline prices were the primary driver of the year-over-year acceleration in the CPI, as consumers paid 5.9% more for gasoline in March than in the same month the previous year. Prices rose 21.2% in a month, the largest monthly gasoline price increase on record, driven by a supply shock from the conflict in the Middle East. However, this monthly effect was muted year over year due to the comparison with prices from March 2025, which included the since-removed consumer carbon levy. The removal of the consumer carbon levy will no longer impact the 12-month movement as of April 2026, and this will be reflected in next month’s CPI release.

Moderating the acceleration in energy prices were lower prices for natural gas (-18.1%), which are largely dependent on North American supply and therefore more insulated from global price changes.

Prices for food purchased from stores rose 4.4% on a yearly basis in March, after increasing 4.1% in February.

On a year-over-year basis, prices for fresh vegetables increased 7.8% in March, the largest increase since August 2023 (+8.7%), after rising 0.5% in February. Cucumbers, peppers and celery all had notable price growth in March, due in part to tighter supplies related to adverse growing conditions in producing countries.

Core inflation measures also came in below expectations, with core inflation hitting 2.0% and the CPI trimmed-mean 2.2% from a year ago, the slowest pace in five years, amid weak housing resales and smaller rent price increases.

Bottom Line

It is very good news that the inflation backdrop softened last month, before the onslaught of the Iran war and the oil price shock. Some of the weaker base effects will be evident in the March CPI data as well, mitigating the impact of soaring energy and commodity prices on this month’s headline inflation number.

The Bank of Canada and the U.S. Federal Reserve will remain on the sidelines at the next statement date on April 29, as a relatively quick end to the Iran war would keep a lid on inflation. President Trump has asked NATO countries to send warships to the Middle East to help open the Strait of Hormuz. The sooner the war ends, the sooner the oil price shock will dissipate. Given the uncertainty, the central banks will do best to keep their powder dry this time around, particularly given that labour markets in both countries have weakened substantially.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Housing Activity Remains Weak in March 

The number of home sales recorded over Canadian MLS® Systems was virtually unchanged (-0.1%) on a month-over-month basis in March 2026.

“Home sales activity remained at lower levels in March, as rising global economic uncertainty, along with a mid-month jump in fixed mortgage rates tied to incoming higher inflation, piled on to an already shaky economic start to the year,” said Shaun Cathcart, CREA’s Senior Economist. “2026 is still expected to see a modest amount of upward momentum in sales and a stabilization in prices as some pent-up first-time buyer demand enters the market, but the forecast for the year has had to be revised downward. The timing of higher mortgage rates, along with the perception they may be temporary, could keep would-be buyers away at the most active time of year – April, May, and June – as they wait for rates to come back down.”

Clearly, the War in Iran, along with its unprecedented oil price shock, has spooked households and businesses, weakening overall economic activity, especially housing, which is highly interest-rate sensitive. Interest rates have risen sharply since the war began in late February, and it is uncertain how long higher oil prices will last. The reopening of the Strait of Hormuz is highly tentative, and it will take weeks, if not months, to return oil prices to pre-war levels.

The war’s timing couldn’t be worse, as it damages the usually strong spring home-selling season.

New Listings

New listings edged down a slight 0.2% on a month-over-month basis in March 2026. Lower monthly sales numbers so far in 2026 could in part be due to the fact new supply is running at the lowest levels since mid-2024.

With new supply and sales both little changed in March, the national sales-to-new listings ratio remained at 47.8%. The long-term average for the national sales-to-new listings ratio is 54.8%, with readings generally between 45% and 65% that are consistent with balanced housing market conditions.

“While the interest rate situation has recently changed, what could be a challenge for a buyer looking for a fixed rate mortgage may also be seen as more choice and less competition for those choosing a variable rate,” said Garry Bhaura, CREA’s 2026-2027 Chair. “Spring tends to be a busier time of year for the housing market, even if it may not be quite as busy as we were expecting not so long ago.”

There were 167,524 properties listed for sale on all Canadian MLS® Systems at the end of March 2026, up just 1% from a year earlier and 10.6% below the long-term average for that time of the year. Overall supply has generally been declining since May of last year.

There were five months of inventory on a national basis at the end of March 2026, unchanged from January and February and right in line with the long-term average for the measure. Based on one standard deviation above and below that long-term average, a seller’s market would be below 3.6 months, and a buyer’s market would be above 6.4 months.

Home Prices

The National Composite MLS® Home Price Index (HPI) edged down 0.6% on a month-over-month basis in February, not a small decline but smaller than in January.

The non-seasonally adjusted National Composite MLS® HPI was down 4.8% compared to February 2025.

Bottom Line

With geopolitical tensions mounting and the tenuous ceasefire in Iran, potential homebuyers have postponed their purchase decisions. While there remains considerable pent-up demand, and home prices in many regions have fallen sharply, especially in Ontario, which was hardest hit by the tariffs last year and the ongoing condo supply glut. These issues are unlikely to be resolved in the near term so that housing market weakness will remain a drag on overall economic activity.

Compounding these concerns is the surge in oil prices. Gasoline prices–a very visible component of consumer spending–have skyrocketed, causing supply disruptions in nitrogen fertilizer, plastics, aluminum and helium. Price pressures will no doubt mount, leading central banks to be concerned about potential stagflation. Next Monday, we will see the CPI data for March. At this point, the Bank of Canada is likely to continue to “look through” the price pressures, hoping the war will end very soon.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca

Canadian employment rose by a moderate 14,100 in March after a tough start to 2026. Given that employment had plunged by a combined 108,700 positions in the first two months of the year, today’s data are far from strong, especially when full-time jobs actually nudged down a bit further last month. Still, even a small plus sign is a positive, as is the stable jobless rate, which held at 6.7% (a tick lower than a year ago).

The Canadian Jobs Report Showed a Small Gain in Net New Employment with the Unemployment Rate Steady at 6.7%

Confusion over a fragile ceasefire continued yesterday as Israel ramped up attacks on Lebanon. The Strait of Hormuz–a key oil shipping route whose closure has sent oil prices skyrocketing in recent weeks–reportedly remained closed. Normally, the Strait accommodates roughly 130 ships a day.

Tehran’s control of the Strait choked off a globally important conduit for oil and gas, as well as the flow of vital materials such as aluminum, helium, fertilizer, and oil components used to make many plastics. Canada is rich in crude and critical minerals, a growing power in liquefied natural gas, and an important supplier of fertilizer and aluminum to the US, though Trump’s tariffs on foreign metals have disrupted the latter industry.

A chunk of global oil production has been taken offline, which could have long-term implications, as the disruption to the free passage of ships through the Strait could linger. Many analysts believe it will take weeks to restore traffic in the Strait to normal levels. These supply disruptions are reminiscent of our COVID experience.

The US sees itself as the enforcer of the free passage of ships in international waters worldwide. If the US backs away from underpinning the free passage of goods, supply disruptions will accelerate.

It was with this backdrop that Statistics Canada released this morning’s Labour Force report. Employment was little changed in March (+14,100; +0.1%) following a cumulative decline of 108,700 (-0.5%) over the first two months of 2026. The number of full-time and part-time workers both showed little variation in March.

On a year-over-year basis, employment was up by 87,000 (+0.4%) in March, largely reflecting gains over the final four months of 2025.

The employment rate—the proportion of the population aged 15 and older who are employed—was unchanged at 60.6% in March, following a cumulative decline of 0.3 percentage points in January and February. The employment rate in March was just above the recent low of 60.5% recorded in August 2025 and was down 0.3 percentage points year over year.

In March, there was little variation in the numbers of public- and private-sector employees and self-employed workers. On a year-over-year basis, the number of employees grew at a faster pace in the public sector (+1.2%) than in the private sector (+0.6%).

The unemployment rate was unchanged in March at 6.7%, following a 0.2-percentage-point increase in February. The unemployment rate was below the peak of 7.1% recorded in August and September 2025 and was little changed year over year. In comparison, the unemployment rate averaged 6.0% from 2017 to 2019, before the COVID-19 pandemic.

Among people who were unemployed in February, 15.2% found work in March. This was similar to the rate recorded in the same months in 2025 (14.7%) but was below the pre-pandemic average of 19.1% for the same months from 2017 to 2019 (not seasonally adjusted). This indicates that higher unemployment rates relative to the pre-pandemic period are mostly driven by slower hiring, rather than by increased layoffs.

The participation rate—the proportion of the population aged 15 and older who were employed or looking for work—was unchanged at 64.9%. On a year-over-year basis, the labour force participation rate was down 0.4 percentage points.

Average hourly wages surged unexpectedly to a 4.7% y/y pace, the fastest in more than a year and well up from 3.9% the prior month. Wages can be a volatile series, but that’s a big bounce, and a move that the Bank of Canada will be watching closely. Meantime, total hours worked edged up 0.2% m/m after a deep dive in February. That still left hours worked down by 0.4% annually for all of Q1. The current consensus forecast for real GDP growth of 1.5% now hinges on an improvement in productivity growth.

Employment rose in ‘other services’ (+15,000; +1.9%) in March, offsetting a similar-sized decline in February. Employment in this industry, which includes repair and maintenance services, was little changed compared with 12 months earlier.

Employment change by industry, March 2026

Employment in natural resources also increased (+10,000; +3.0%), with nearly half of those gains coming from Alberta (+4,500; +3.2%). On a year-over-year basis, employment in this industry was little changed at the national and Alberta levels.

On the other hand, employment in finance, insurance, real estate, rental and leasing fell by 11,000 (-0.8%) in March, the first significant monthly decline since November 2023.

Although employment in health care and social assistance was little changed in March, it was up 94,000 (+3.3%) compared with 12 months earlier, the largest employment growth among industries. Over that same period, the largest employment decline among industries was in manufacturing (-44,000; -2.4%).

Bottom Line

In other news, the US CPI for March, released this morning, surged the most in nearly four years as the war with Iran sent gasoline prices skyrocketing. The CPI spiked 0.9% from February. Year-over-year inflation increased to 3.3%, the strongest pace since 2024. A record rise in gasoline prices was responsible for nearly three-quarters of the monthly advance. Core inflation rose at a slower 0.2% pace monthly pace.

The data underscore how the war in the Middle East is beginning to ripple through the global economy, worsening households’ affordability woes. Gas prices have already surged at the pump, and, according to Bloomberg News, service providers, including Delta Air Lines and the US Postal Service, have warned of price hikes ahead.

The Canadian CPI data for March will be released on Monday, April 20, before the April 29 Bank of Canada announcement. The data will undoubtedly show a spike in price pressures, but given the geopolitical uncertainty regarding how long the disruption to oil tanker traffic will last, the Bank of Canada is likely to keep its powder dry at the next meeting. There is a real risk of stagflation, so inaction is the likely outcome, for fear of worsening tepid economic growth in response to what everyone hopes is a temporary surge in oil prices.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drsherrycooper@dominionlending.ca