Tariffs Cast Shadow Over Housing Market
The trade war launched by the Trump administration has the potential to negatively impact the Canadian housing market.
If prolonged, tariffs will strain this country’s economy and labour market and worsen affordability.
At the start of the year, before the U.S President was sworn in, the Canadian economy had been on solid footing.
Trump’s threat to impose taxes on all goods imported from Canada, and then on-again-off-again tariff policy in February, kept homebuyers on the sidelines at a time when the real estate market traditionally starts to pick up heading into spring.
Market activity fell sharply from January to February, with sales dropping nearly 10%. This marked the lowest level of home sales since November 2023, and the largest month-over-month decline in activity since May 2022.
While declines were broad-based — sales fell in about three-quarters of all local markets and in almost all large markets — the trend was most pronounced in the Greater Toronto Area and surrounding Great Golden Horseshoe regions.
New listings also plunged 12.7% month-over-month, returning all of the surprise cross-country surge recorded in January.
There were 4.7 months of inventory on a national basis at the end of February, up sharply from 4.1 months at the end of January.
Months of inventory refers to the number of months it would take to sell all the homes currently on the market, given the current sales pace, assuming no new homes are listed.
The national composite MLS home price index declined by 0.8% over the same time period, marking the largest month-over-month decrease since December 2023.
The renewed softening in prices was most notable in Ontario’s Greater Golden Horseshoe region.
While trade war uncertainty seems to be causing some buyers to think twice about big financial decisions right now, a softer pricing environment and now lower interest rates offers a buying opportunity this spring.
Many economists are predicting the Bank of Canada will cut interest rates two to three more times by summer, reducing them to as low as 2% to cushion the economic wound opened up by Trump’s trade policy.
But if trade tensions persist and tariffs take hold, inflation will inevitably rise. In turn, the country’s central bank would likely increase interest rates to counter this, with the Organization for Economic Co-operation and Development forecasting rates to rise by 1% to 1.25% this year, in a worst-case scenario.
