Canada's economy contracted 0.3% in October, the sharpest pullback in almost three years. Manufacturing fell. Construction slowed. Wood product output dropped 7.3% after U.S. tariffs hit Canadian lumber.

The numbers look rough. But before you assume this means crisis mode for real estate, there's more to the story.

Economists aren't panicking. The Bank of Canada saw this coming. And the factors driving October's decline don't necessarily point to a collapsing economy or housing market disaster.

Here's what actually happened, what it means for the broader economic picture, and how it connects to property decisions in markets like Kelowna.

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The Manufacturing Story

Manufacturing output fell 1.5% in October, leading the overall decline. Machinery manufacturing dropped 6.9%, the biggest contributor to the sector's negative performance.

But wood products took the hardest hit. The 7.3% decline marked the largest drop since April 2020. Statistics Canada pointed directly to the cause: additional U.S. tariffs on Canadian lumber that took effect October 14.

Sawmills and wood preservation operations saw a 9% decrease as producers slowed output in response to the tariff impact. When your largest export market suddenly becomes more expensive to sell into, you adjust production. Fast.

This isn't about Canadian lumber being uncompetitive or demand disappearing. It's about navigating trade policy changes. The production slowdowns were strategic responses to shifting market conditions, not signs of fundamental industry collapse.

TD economist Marc Ercolao noted that tariff-impacted industries showed strain in October after gradually recovering in prior months. The keyword there is "gradually recovering." These sectors had been bouncing back. October was a setback, not the start of a freefall.

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One-Time Factors Skewed the Numbers

October's contraction got amplified by temporary disruptions that won't repeat.

Alberta's provincewide teachers' strike ran for more than three weeks, weighing heavily on the public sector. That drove a 0.3% decline in the education category for October. Teachers' strikes don't last forever. This impact reverses when normal operations resume.

The nationwide Canada Post work stoppage hit transportation and warehousing output, which fell 1.1%. Again, temporary. Mail service resumes, the numbers normalize.

Oil and gas extraction shrank 0.6%, but Statistics Canada attributed this largely to maintenance work at oilsands facilities. Planned maintenance is exactly that, planned and temporary.

RBC economist Abbey Xu put it plainly: "October's data were also influenced by a handful of one-off factors that should unwind, reinforcing the view that October's softness does not point to a broader deterioration."

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What November's Data Shows

Statistics Canada's advance estimate for November points to 0.1% growth. Education, construction, and transportation sectors all showed increased activity.

That's not explosive growth. But it suggests October was more pause than trend reversal.

CIBC senior economist Andrew Grantham projects Q4 GDP will show a modest 0.5% annualized contraction. That signals increased economic slack, but it's not the stuff of recessions. Canada avoided a technical recession in 2025 largely due to Q3's surprise 2.6% jump.

The picture looks like what economists have been describing: subdued growth with stabilization rather than collapse.

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The Interest Rate Connection

The Bank of Canada held its key rate at 2.25% on December 10, and economists expect it to stay there for much of 2026. Governor Tiff Macklem said the economy has proven resilient and the current rate is "about right" to balance inflation and growth.

October's GDP numbers don't change that calculus. Macklem specifically said in early December that he expected weak Q4 growth. This data confirms what the Bank already anticipated.

Money markets show just 16% probability of another rate cut at the next announcement. Most forecasts see the rate holding at 2.25% through at least mid-2026, with some economists suggesting a potential hike later in the year if conditions warrant.

For real estate, this matters more than October's GDP contraction. Interest rates have fallen from 5% in mid-2024 to 2.25% now. That's 2.75 percentage points of cuts that directly improve affordability and buying power.

The rate dropping from 5% to 2.25% has already happened. The rates staying stable at 2.25% through 2026 means borrowing costs should remain relatively predictable for the near future.

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What This Means for Kelowna

Local market dynamics don't move in lockstep with national GDP reports. Kelowna's housing picture reflects regional factors that often diverge from broader economic trends.

Kelowna's median single-family home price sits around $1.2 million, up 6% year-over-year as of Q2 2025. That growth happened during a period when national GDP was already showing weakness.

January 2025 saw a 41% jump in single-family sales compared to the previous year, suggesting renewed buyer confidence even as broader economic uncertainty persisted. Inventory has climbed about 21% year-over-year, giving buyers more options without creating a buyer's market panic.

The factors driving Kelowna's market, population growth in the Okanagan, migration from more expensive markets like Vancouver, lifestyle preferences for smaller cities with recreational amenities, operate somewhat independently from short-term GDP fluctuations.

Manufacturing slowdowns in Ontario don't directly affect demand for Kelowna properties. Temporary strikes in Alberta's education sector don't change whether someone in the Lower Mainland wants to relocate to the Okanagan.

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The Bigger Economic Picture

Xu from RBC noted that domestic demand "appears to be on firmer footing" despite trade-related uncertainty weighing on export sectors. That distinction matters.

The parts of the economy most affected by October's contraction, manufacturing exports, oil and gas extraction, trade-exposed sectors, aren't the primary drivers of residential real estate demand in markets like Kelowna.

Residential real estate responds more directly to employment conditions, interest rates, population growth, and local supply constraints. October's data showed construction declining 0.4% nationally, with residential building construction down for the third straight month.

That supply-side constraint, fewer homes being built, actually supports prices in markets where demand remains steady. Less new construction means existing inventory becomes relatively more valuable.

Wholesale and retail trade both declined in October, down 0.9% and 0.6% respectively. But these aren't catastrophic drops. They're modest pullbacks that suggest caution rather than collapse.

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What Economists Are Actually Saying

The consensus isn't doom and gloom. It's "subdued growth followed by gradual recovery."

Ercolao from TD expects "overall economic growth will remain subdued over the next quarter or two before gradually recovering over the medium-term." Not strong growth, but recovery.

Grantham from CIBC said October's data "signalling a further increase in slack within the economy, which will dampen bets for interest rate hikes in 2026." Translation: the Bank of Canada won't be raising rates aggressively anytime soon.

Xu emphasized that "conditions appear to be stabilizing rather than collapsing." The economy isn't firing on all cylinders, but it's not breaking down either.

This matters because real estate markets hate uncertainty more than they hate slow growth. Stable, predictable conditions, even if growth is modest, allow people to make property decisions with reasonable confidence about what comes next.

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The Tariff Factor

U.S. trade policy remains the wild card. The lumber tariffs that hit in October are one example. Broader trade tensions could create additional headwinds for export-oriented sectors.

About 37% of Canadian businesses reported negative impacts from U.S. tariffs or trade barriers in Q3 2025, according to Statistics Canada. Manufacturing and wholesale trade felt it most acutely.

But residential real estate buyers aren't typically making decisions based on lumber export volumes. They're looking at their employment situation, their income, interest rates, and whether they can find a home they want at a price they can afford.

Trade uncertainty creates general economic anxiety that can dampen confidence. But it doesn't directly prevent someone from buying a home if the fundamentals work for them.

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Looking at Q4 and Beyond

Fourth-quarter GDP is tracking roughly flat according to TD's estimates. After Q3's 2.6% annualized jump, a flat Q4 represents cooling but not crisis.

The advance indicators for November, rising hours worked, retail sales up 1.2%, wholesale sales up 0.1%, all suggest some recovery from October's weakness.

The Bank of Canada's next policy decision comes January 28. The consensus expects no change. Rates holding steady at 2.25% provides a foundation for real estate markets to operate without the volatility that comes from rapidly changing borrowing costs.

Fixed mortgage rates have ticked up slightly as bond yields rose, with the best available rates now around 3.89% according to Ratehub. But that's still dramatically lower than the 5%+ rates of mid-2024.

Variable rates tied to prime remain around 4.45%. For buyers who were priced out when rates were at 5%, today's environment offers meaningfully better affordability even if October's GDP number looks concerning.

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What This Means for Property Decisions

Economic headlines create emotional reactions. A 0.3% GDP contraction sounds bad. But context matters.

This isn't 2008. Banks aren't collapsing. Credit isn't frozen. The housing market isn't flooded with distressed sales. Construction is slow partly because demand has been cautious, not because the industry is imploding.

For buyers in markets like Kelowna, current conditions present opportunities. Inventory is elevated compared to the hot market years. Sellers are more willing to negotiate. Interest rates have stabilized at levels significantly lower than 2024's peaks.

For sellers, the environment requires realistic pricing. Properties clinging to 2022 valuations sit unsold. But homes priced for current market conditions still sell, just not at the frantic pace of the pandemic years.

The October GDP data doesn't suggest you should panic out of buying or rush to sell. It suggests the economy is adjusting to new conditions, trade tensions, higher interest rates than pandemic lows, tighter monetary policy, and finding a slower but more sustainable pace.

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At Coldwell Banker Horizon Realty, we track both the macro trends and the micro details that affect real estate decisions in the Central Okanagan, helping clients make sense of what national economic data actually means for their specific situation.