Bank of Canada expected to lower rates; but unknown aspects of tariffs will slow housing markets

How the Trump tariffs will affect housing markets in Canada are not yet clear, although Bank of Montreal chief economist Doug Porter says one effect could be lower borrowing rates if the tariffs weigh heavily on the Canadian economy. 

“Even though the Bank (of Canada) 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 CMP). “And of course, the housing market is the most interest rate-sensitive sector of the economy.” 

“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.” 

Porter told CMP Canada’s GDP growth could decline roughly 2%, leading the country into a “modest recession” if the tariffs were in place for a year. 

He also predicted the Bank of Canada is likely to cut its policy rate by .25% at each of its meetings until October, taking it down to 1.5%. 

Canadian home builders import some construction materials from the US; the cost of those materials will increase and be passed along to buyers, but Porter doesn’t think that could 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.” 

A rate reduction by the Bank of Canada alone isn’t likely to stimulate housing market activity, according to Porter. However, he remains positive about Canada’s housing markets’ 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. 

Paul Betts, president of GAP Marketing Group, a real estate marketing and training firm, says there are a number of factors that influence housing markets. 

“In any market, resale or new, luxury or starter, multi or single, there are real impacts that are felt,” says Betts. “Interest rates, prices, health of employment locally, supply etcetera. Latent influences, not easily measurable, impact as well and currently one can argue to an inordinate degree.”  
 
With the tariffs, the unknowns of what the tariffs’ effects will have on housing will initially, at least, slow markets, says Betts.  

“There are as many differing opinions as there are those offering them but when it comes to real estate there has rarely been a time when buyers and sellers were as circumspect,” he says. “No one knows the depth of impact, no one knows how long this will go on, no one knows if tariffs will be reduced, expanded or removed altogether. Especially true, is no one knows the impact this will have on real estate.” 

Some aspects of home buying can be predicted, such as interest rate trends, potential supply available based on units under construction and project delivery and the rise or fall of prices in specific markets   

"But here we are with no baseline or history to analyze,” says Betts.”We are in unchartered territory with erratic decision makers and unpredictable reasoning. We are in the throes of a federal government uproar plus a provincial election in Ontario.” 

Betts says great unknowns have always slowed buyers’ decisions. 

“Even those who want to, who are able to, and who are planning to step in and buy are sidelined by the unknown and the unforeseen,” he says. “Any market is rattled by turmoil and uncertainty so unless and until things settle out and full impacts are known, caution is believed by many to be prudent in the market.”  
 
“Builders, developers and realtors have to insert measures to deflect some of the impact, and educating the buyer rather than selling has never been as important.”