How will Trump's tariffs impact Canada's housing market?

Canada enters a new reality this week after huge US levies on Canadian imports

How will Trump's tariffs impact Canada's housing market?

It’s been the single biggest imponderable looming over the Canadian economy in early 2025 – and US tariffs became a reality on Saturday when Donald Trump introduced massive charges on Canadian goods crossing the border southwards.

That action, which includes 25% levies on all Canadian imports excluding energy – which was tariffed at 10% – has cast huge uncertainty over Canada’s economic outlook and sparked fears of a potential hammer blow to the loonie.

Its effect on Canada’s housing market remains to be seen. Last week, Bank of Montreal (BMO) chief economist Doug Porter (pictured top) told Canadian Mortgage Professional that the Bank of Canada would likely slash interest rates further if US tariffs began to weigh down heavily on the Canadian economy, meaning potential borrowing costs could end up even lower than first anticipated for the year ahead.

But the severity of Trump’s measures – and Canada’s response, which included retaliatory tariffs on billions of dollars’ worth of American goods – leaves plenty in doubt about whether the housing market will suffer from wider economic strain.

Intensity of potential trade war remains a key unknown

Speaking days before Trump confirmed the tariffs would go ahead, Porter suggested a “light trade war” could boost the Canadian housing market, but emphasized it would probably be damaged by anything more intense.

“Even though the Bank is a bit mixed [on being prepared to cut rates], I think at the end of the day it means lower interest rates than would otherwise be the case,” Porter told Canadian Mortgage Professional. “And of course, the housing market is the most interest rate-sensitive sector of the economy. In general, I don’t think a trade war would have much direct impact.

“What I would be worried about is if the Canadian economy were really wounded badly by a trade war, then that could actually work its way back into the housing market and clip demand as well. The threat to the housing market would be the indirect effect of a weaker economy.”

After the tariffs were announced, Porter said the trade war would likely reduce Canada’s GDP growth by around two percentage points and could slide the economy into a “modest recession” if those measures remained in place for a year.

The Bank of Canada is also likely to slash its policy rate by a quarter-point at every meeting until October, he said, bringing it down from its current level to 1.5%.

US tariffs and countermeasures are likely to see the cost of materials for home construction jump on both sides of the border. But Porter said that wouldn’t necessarily harm Canada’s housing outlook significantly.

“Some building materials could face tariffs, when you think of things like plumbing supplies. But a lot of things can be produced here too or already are produced here,” he said. “The costliest part of building a house is land and labour – less so some of the supplies. So I don’t think it will have too negative an effect on the housing market.”

How is the housing market poised after the BoC’s actions to date?

US president Donald Trump first announced the tariff plans in November, a bolt out of the blue that roiled markets and sent the Canadian dollar plunging.

The reasons Trump has given for those proposed measures have varied. Initially, he claimed Canada’s border security was too lax, while last week he said Canada and Mexico “have never been good” to the US on trade matters.

His claims have been refuted by observers including former Canadian prime minister Stephen Harper, who said he had a “real problem” with some of Trump’s pronouncements on Canada.

Those threats have been mentioned in each of the Bank of Canada’s last two interest rate announcements, a 50-basis-point cut in December and a quarter-point snip last week.

The Bank’s statement after reaching its decision on Wednesday noted the resilience of the Canadian economy could come under strain with the imposition of “broad-based and significant” US tariffs.

That rate reduction alone will do little to spur activity in Canada’s housing market, Porter said, although he sounded a positive overall note on its 2025 prospects despite the prospect of lower immigration this year than first planned.

“We’ve now had two percentage points of total easing by the Bank of Canada [since last June],” he said. “That’s a very aggressive move by the Bank in a short period of time, and a clear positive for the housing market. Heading into this, the housing market looked as if it was getting back on its feet. I wouldn’t say it was strong, but it was relatively well-balanced.

“It has had the very strong population growth support knocked out from underneath it – but I think interest rates are a more important story for the housing market. I’d still be mildly constructive on the housing market this year, even with the threat of a trade war.”

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