Mortgage Blog

Why Inflation Is Cooling but Homeownership Still Feels Expensive in Canada

January 13, 2026 | Posted by: Richard De Guzman

If you have been watching the news, you have likely heard that inflation in Canada is coming down. That sounds like good news, especially for homeowners and buyers who have been under pressure from higher mortgage rates and rising costs. Yet for many Canadians, owning a home still feels just as expensive as ever.

So what is really going on?

The answer lies in how inflation is measured, especially when it comes to housing. While overall inflation may be easing, the costs tied directly to homeownership, such as mortgage interest, property taxes, insurance, and maintenance, are still elevated. Understanding this disconnect is critical if you are buying, renewing, refinancing, or simply trying to manage your household budget.

What "Cooling Inflation" Actually Means for Canadians

Inflation is typically measured using the Consumer Price Index, or CPI. This index tracks how prices change over time across a broad basket of goods and services, including food, transportation, clothing, and housing-related costs.

When headlines say inflation is cooling, they are referring to the overall CPI number. This does not mean every category is getting cheaper. Some categories slow down faster than others, and housing is one of the slowest to adjust.

This is why many homeowners feel confused. Gas prices may stabilize, grocery inflation may soften, but monthly housing costs can remain high or even continue rising.

Shelter Costs Are the Missing Piece Most Homeowners Overlook

Within CPI, there is a category called shelter inflation. This includes several housing-related components that directly affect homeowners and buyers.

• Mortgage interest costs
• Rent
• Property taxes and utilities
• Home insurance and maintenance

Mortgage interest costs deserve special attention. Even when inflation starts to ease, mortgage interest costs can remain high because they reflect past rate increases. In other words, homeowners renewing today are still feeling the impact of earlier Bank of Canada rate hikes.

This is one of the main reasons affordability still feels stretched, even when inflation headlines sound more optimistic.

Why Mortgage Rates Do Not Move in Lockstep With Inflation

Many homeowners assume that if inflation drops, mortgage rates will immediately follow. In reality, mortgage rates respond to a combination of factors.

Variable rates are tied more directly to the Bank of Canada's policy rate. Fixed rates, on the other hand, are influenced by bond markets and investor expectations about future inflation and economic growth.

This means inflation can cool while fixed mortgage rates remain elevated, especially if markets expect inflation to be stubborn or economic conditions to remain uncertain.

For homeowners, this creates a confusing environment where cost pressures linger even as economic indicators improve.

What This Means If You Are Buying a Home

For buyers, cooling inflation does offer some long-term optimism, but it does not automatically restore affordability overnight.

Home prices, borrowing costs, and qualification rules still play a major role. Even with inflation easing, buyers may still face stress test challenges and higher monthly payments compared to a few years ago.

This is where planning becomes essential. Understanding how your mortgage options align with your budget, future income, and risk tolerance can make a meaningful difference.

If you are actively shopping, it is worth reviewing your options with a professional who can help you navigate today's rate environment and qualification rules.

How Renewing Homeowners Are Affected Most

Mortgage renewals are where the impact of shelter inflation is felt most directly.

Many Canadians renewing now are moving from historically low rates into much higher ones. Even if inflation is cooling, the renewal payment shock can be significant.

This makes it more important than ever to review your renewal options rather than simply signing your lender's offer. Term length, fixed versus variable choices, and payment flexibility all matter in a market like this.

If your renewal is coming up, reviewing your strategy early can help reduce risk and avoid unnecessary cost increases.

Refinancing as a Tool to Manage Cost Pressure

For some homeowners, refinancing can help manage the ongoing pressure of higher shelter costs.

While refinancing does not eliminate higher rates, it can help by restructuring debt, extending amortization, or consolidating higher-interest obligations into one payment.

This approach can improve monthly cash flow, especially in households facing rising property taxes, insurance premiums, or other fixed costs.

Refinancing should always be approached carefully, with a clear understanding of long-term costs and goals. A professional review can help determine whether it makes sense in your situation.

Why Housing Supply Still Matters

Another reason affordability remains strained is housing supply. Even as inflation cools, supply constraints continue to put pressure on prices in many markets.

Construction costs, labour shortages, and zoning challenges all affect how quickly new housing comes to market. These factors are slow to change and can keep prices elevated despite improving inflation data.

For homeowners, this means housing costs remain sticky, and affordability improvements tend to be gradual rather than immediate.

What Homeowners Should Focus on Right Now

Instead of reacting to headlines alone, homeowners are better served by focusing on what they can control.

• Review your mortgage before renewal dates
• Understand how your rate type affects future payments
• Stress-test your budget for higher costs
• Seek professional advice before making changes

Cooling inflation is a positive signal, but it does not remove the need for careful planning. The households that navigate this period best are the ones that stay informed and proactive.

Frequently Asked Questions

Why does housing still feel expensive if inflation is coming down?

Because housing costs, especially mortgage interest, respond slowly to inflation changes. Past rate increases are still working their way through renewals and payments.

Will mortgage rates drop as inflation cools?

Not automatically. Fixed and variable rates depend on different factors, and rate movements can lag inflation trends.

Should I wait for inflation to fall further before buying?

Timing the market is difficult. Buyers should focus on affordability, stability, and long-term plans rather than short-term inflation data.

Is refinancing worth considering in a high-rate environment?

In some cases, yes. Refinancing can help manage cash flow or consolidate debt, but it must be evaluated carefully.

How early should I start planning my mortgage renewal?

Ideally six to twelve months before your renewal date. Early planning provides more options and reduces pressure.

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