U.S. Tariffs Threaten Canada Housing Market Amid Economic Uncertainty

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In early 2025, the Canadian housing market faces significant uncertainty due to potential U.S. tariffs. The U.S. administration has proposed a 25% tariff on Canadian steel and aluminum imports, which could have far-reaching effects on Canada's economy and housing sector. RBC Economics highlights the substantial risk these tariffs pose, suggesting they could cast a "potentially dark shadow" over the housing market. Robert Hogue, assistant chief economist at RBC, compares the housing outlook to "putting a price on a home before an earthquake," emphasizing the difficulty in predicting market stability under such conditions.

The potential tariffs could weaken the Canadian dollar, reduce investment confidence, and possibly drive up inflation, increasing the risk of a recession. The Bank of Canada has responded by cutting its benchmark interest rate to 3%, aiming to mitigate the economic shock from the trade conflict. Governor Tiff Macklem notes the challenge of managing weaker growth alongside rising prices, acknowledging the central bank's limited ability to counteract the trade dispute's effects. Projections indicate that such tariffs could reduce economic growth by 2.5 percentage points and increase inflation by 0.8 percentage points.

Despite these challenges, there are emerging positive signs for the housing market. RBC predicts a recovery in 2025, largely driven by declining interest rates. Additionally, new mortgage rules implemented in December 2024, including an increase in the price cap for insured mortgages and extended amortization periods for first-time buyers, are expected to ease conditions. However, the overall outlook remains uncertain, heavily dependent on the evolving trade relations between Canada and the U.S., as well as broader geopolitical and economic shifts.

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