Canada’s labour market added 75,000 jobs in July 2026, according to Statistics Canada. The unemployment rate fell to 6.4%, its lowest level since July 2024.
StatCan Report
Generally speaking, one would interpret this data as good economic news. More people are working and earning an income. Presumably, more people are in a position to qualify for a mortgage.
So Why Aren’t Banks Responding by Lowering Their Mortgage Rates?
You might reasonably assume that banks want to encourage more people to borrow if more Canadians can afford mortgages. Lowering rates could generate more customers for lenders.
Instead, the opposite sometimes happens. Strong employment numbers can put upward pressure on mortgage rates—or at least make it less likely that rates will fall.
Economy – Inflation – Mortgage Rates
If you understand how inflation fears can push bond yields higher, which can then increase mortgage rates, you understand why it’s important to keep an eye on CPI readings.
For a more detailed discussion on this relationship and how it can be affected by geo-political factors, read more of my articles here:
* How Tariffs affect Mortgage Rates
* Iran Conflict and Mortgage Rates
The other side of the economy–mortgage rate relationship is understanding how a strong economy can contribute to inflation. If more people are working and earning money, why would that cause prices to rise?
When employment is strong and incomes are rising, households generally have more money available to spend. That can increase demand for goods and services throughout the economy.
Increased demand doesn’t automatically cause inflation. The problem arises when demand grows faster than a business’ ability to supply the goods and services people want. When more money is competing for a limited supply of goods, businesses can raise prices.
As bond investors track fear rising inflation, they sell bonds thus driving up bond-yields. Subsequently mortgage rates increase.
The Trade-Off
So a strong economy can give you a secure job and a higher income. Unfortunately, it can also bring higher prices. You may be earning more money than ever before, while watching much of that additional income disappear into the rising cost of living.
That is one of the trade-offs of a strong economy. It may not feel like you are moving forward as quickly as your income suggests. But if your income is increasing faster than your expenses, you are still left with more money, greater financial security and a stable job. Higher mortgage rates driven partially by inflation are one drawback, but they should not erase the value of everything else a strong economy can provide.
