Canada's housing market braces for impact as a fresh wave of tariffs looms

Another week brings another looming threat of US tariffs on Canada as Donald Trump’s so-called “Liberation Day” on April 2 inches nearer.  

The US president’s vow to slap huge tariffs on Canadian imports has cast a constant shadow over Canada’s economy in 2025, sending the loonie plunging and pouring cold water over a hoped-for housing market revival in the opening months of the year.  

It remains unclear what form Trump’s new tariffs will take, although it’s expected to include huge levies on Canadian steel and aluminum as well as many of the goods exempted from his first round of tariffs after Canada-US talks at the beginning of March.  

But they’ll clearly have a huge say on how Canada’s housing market performs in the coming months, Bank of Montreal (BMO) chief economist Doug Porter told the Canadian Mortgage Brokers Association – Ontario (CMBA-ON) annual conference in Vaughan last week.  

“If I were to list the three biggest risks facing the Canadian economy, it would be: trade war, trade war, trade war,” Porter said. “There is no doubt what’s really the big challenge here – and I’m not quite sure it really matters who’s in charge in Ottawa.  

“Mr. Trump has definitely got his own agenda here on the trade front and unfortunately with Mexico, we’re one of the most exposed economies in the world to trade with the US. And frankly, that just clouds the entire picture for the housing market.”  

Housing market faces some of the worst trade war pain 

A sliver of good news as Trump’s trade war continues: housing remains, in Porter’s words, the industry that’s least directly exposed to that ongoing crisis, in stark contrast to other sectors which rely heavily on exports to the US for their livelihood.  

“It’s essentially a domestic industry for all intents and purposes. We saw how well it overcame all of the uncertainty around the pandemic,” he said. “So I’m not especially bearish on the housing market.  

“We actually think it can hang in there but there’s no question – it’s not great news to have so much uncertainty hovering over consumers and somewhat of a backup in the unemployment rate. That’s the main reason I’m not even more bullish on the housing market.”  

Where are interest rates headed in a trade war? 

The trade war has sparked speculation that the Bank of Canada could be compelled to slash interest rates even further than originally expected to offset the potential shock to the Canadian economy.  

The Bank has already been among the world’s most aggressive rate-cutting central banks, Porter said, having lowered rates by 2.25% since last year – compared with the Fed, which has only lowered rates by one percentage point, and the European Central Bank (ECB) whose benchmark rate has fallen by 1.5%.  

 Porter and BMO are expecting Canada’s central bank to cut even further with sharp pain for the Canadian economy potentially ahead.  

“The fundamentals for the Canadian economy and the housing market were actually very positive until tariffs showed up,” he said. “Our view is that the Bank’s not quite done yet. They’re definitely more reluctant to cut rates a whole lot further.  

“They’re concerned that inflation is still showing some signs of stickiness but ultimately, we think that overnight interest rates will get down to 2% from 2.75%. Our official view is that that will happen over a relatively short period of time. The Bank may stretch it out a little bit because of that recent bump in inflation – but effectively, we see rates going back to 2%.” 

Trump’s unpredictability has been a dominant theme of the trade chaos to date, with the president delaying the imposition of tariffs for 30 days at the beginning of February and then paring those measures back again in early March.  

But even a short-lived trade war would likely have huge repercussions for the Canadian economy. The Conference Board of Canada says unemployment could spike to 7.3% in the second quarter if Trump’s tariffs stay in place – and those US measures could put up to 160,000 people out of work in Canada. 

Source CMP
By Fergal McAlinden