RBC economist highlights risks to homebuyers and builders
A full-scale trade war with the US could send shockwaves through Canada’s economy, raising new concerns for the housing market.
According to Robert Hogue, assistant chief economist at RBC Economics, the potential impact of tariffs is difficult to predict, but the risks are real.
"Assessing the outlook for Canada’s housing market at this juncture is like putting a price on a home before an earthquake—it’s hard to know what shape the structure will be in at the end of the day," said Hogue.
The US administration’s decision on February 3 to pause the implementation of blanket tariffs was seen as a potential sign of restraint. However, just a week later, a 25% tariff on all steel and aluminium imports from Canada was announced, fuelling concerns that more trade restrictions could be on the way.
What this means for the housing market
Despite trade-related risks, RBC expects the Canadian housing market to continue its recovery in 2025, with lower interest rates helping to unlock demand. Declining borrowing costs are expected to reduce homeownership expenses, making it easier for buyers to enter the market.
Rising inventory of homes for sale will also provide more options for buyers, allowing transactions to flow more smoothly.
“A growing inventory of homes for sale will grease the market’s wheels by giving buyers more options to choose from,” Hogue wrote in a recent report. “These dynamics were set in motion in the second half of 2024 and have longer to run in the year ahead as we expect interest rates to fall further.”
Additionally, recent changes to mortgage insurance rules will also play a role in shaping demand. The new guidelines, which provide more flexible mortgage insurance terms for buyers with down payments below 20%, could help more first-time homebuyers enter the market.
However, the housing market still faces major obstacles beyond interest rates. Strained affordability, reduced immigration, and economic uncertainty could limit the extent of a recovery. While affordability has improved slightly, RBC noted that many buyers remain cautious about overextending themselves in an uncertain economy.
The federal government’s decision to significantly cut immigration levels is also expected to reduce population growth, which could weigh on housing demand.
What happens if a full trade war erupts?
A full-blown trade conflict with the US could have widespread consequences for Canada’s economy and housing sector, RBC warned.
Any prolonged trade disruption would likely slow economic growth, weaken consumer confidence, and push up the cost of home construction materials. The resulting financial strain could make buyers hesitant while also adding to builders’ costs at a time when housing affordability remains a challenge.
Canada’s export relationship with the US is deeply intertwined with its economic stability, with $35 billion worth of steel and aluminium exports sent south last year, according to BMO economist Robert Kavcic. The US is Canada’s largest market for aluminium, with over three million tonnes exported annually, according to the US National Trade Administration.
Any further restrictions on trade could lead to capital flight, job market disruptions, and a slowdown in housing demand, RBC warned. The extent of the damage would depend on how Canada and the US respond to ongoing trade tensions and whether additional tariffs are imposed.
Read next: Freeland pitches tax cuts to ease housing costs
If no major economic shock occurs, RBC forecasts that home resale transactions will rise 12% nationally in 2025, reaching 551,000 units. This would mark a return to more typical activity levels, about 7% above the pre-pandemic five-year average.
However, home prices are expected to see only modest gains. RBC projects the national RPS Home Price Index will rise by just 1.4% in 2025, compared to a 2.9% increase in 2024.
“Absent any major economic shock, we’d expect housing market demand and supply to stay balanced in the year ahead, yielding minimal price increases Canada-wide,” Hogue said.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
