Imagine you’re house hunting in Canada, eyeing that dream home with a cozy fireplace and a big backyard. But just as you’re about to lock in a mortgage rate, something unexpected happens—U.S. tariffs start shaking up the Canadian economy, and suddenly, the housing market feels a little less stable.
Wait, what? How do U.S. tariffs even relate to Canadian mortgage rates and real estate? It’s a complicated web, but don’t worry—we’re breaking it down in plain English.
The Ripple Effect: How U.S. Tariffs Hit Canada
When the U.S. slaps tariffs on Canadian goods—whether it’s steel, aluminum, lumber, or even dairy—it doesn’t just affect businesses that export those products. It creates a domino effect across the entire economy.
- Tariffs Make Goods More Expensive: If Canadian businesses have to pay extra fees to sell their goods in the U.S., they either absorb the cost (reducing profits) or pass it on to consumers (higher prices for us).
- Businesses Cut Jobs or Investments: If profits shrink, companies might slow down hiring, reduce wages, or even lay off workers.
- The Canadian Dollar Drops: When trade becomes uncertain, investors start selling Canadian dollars in favour of safer options, like U.S. dollars or gold. A weaker loonie means imports cost more, leading to inflation (higher prices on everyday goods).
- Foreign Investment May Decline: International investors may hesitate to put money into Canada if tariffs create economic instability.
- Stock Market Uncertainty: The financial markets react to tariff changes, influencing consumer confidence and spending habits.
- Business Confidence Drops: Companies hesitate to expand when they’re unsure about future costs, leading to slowed economic growth.
- Exporters Take a Hit: Industries that rely on the U.S. as a major trading partner can see demand decline, impacting revenue and employment.
Now, what does this have to do with mortgages and real estate? A lot, actually.
How Will Tariffs Affect Mortgage Rates: The Connection
Let’s connect the dots between tariffs and mortgage rates.
Inflation: It All Starts With Inflation.
When a country imposes tariffs—essentially taxes on imported goods—those goods become more expensive. Businesses often pass these higher costs onto consumers, which drives up prices across the board. This increase in prices is what we call inflation.
In Canada, the Bank of Canada (BoC) is responsible for keeping inflation in check. One of its main tools to control inflation is interest rates. When inflation rises too quickly, the BoC steps in by raising interest rates. Higher interest rates make borrowing more expensive, slowing down spending and helping to cool inflation. However, this also means that banks charge more for loans, including mortgages. On the other hand, if the economy slows too much, the BoC may lower interest rates to encourage borrowing and spending. But if inflation is still high, they may hesitate to do so.
Learn more: How Inflation Affects Your Mortgage
Impact On Mortgage Rates
Now, let’s look at how mortgage rates are affected. Mortgage rates are closely tied to government bond yields. When tariffs create economic uncertainty, investors may react by moving their money in and out of bonds, causing bond yields to fluctuate. Since fixed mortgage rates are largely influenced by bond yields, these fluctuations can impact how much homeowners pay on their mortgages. If bond yields rise, fixed mortgage rates tend to go up as well.
Variable-rate mortgages, on the other hand, respond directly to changes in the BoC’s interest rate decisions. If the BoC raises rates to fight inflation, homeowners with variable-rate mortgages will see their mortgage payments increase almost immediately. Fixed-rate mortgages provide more stability, but they are still affected by overall market trends driven by inflation and bond yields.
Learn more: Bank Of Canada Lowers Interest Rates: What It Means For Fixed And Variable Mortgage Rates
Mortgage Requirements
Another consequence of economic uncertainty caused by tariffs is tighter lending conditions. If banks see higher risks in the economy, they may become more cautious about lending. This means stricter mortgage approval processes, making it harder for some people—especially first-time homebuyers—to qualify for a mortgage.
Ultimately, if U.S. tariffs lead to higher inflation in Canada, mortgage rates could rise. This makes it more expensive to borrow money for a home, putting extra pressure on both new buyers and homeowners looking to renew their mortgages.
How Tariffs Shake Up Canadian Real Estate
Now, let’s talk about the housing market. Real estate is deeply tied to the economy, and tariffs can throw things off balance in a few key ways.
1. Higher Construction Costs
Many materials used in home construction—lumber, steel, aluminum—are either exported to or imported from the U.S. Tariffs can make these materials more expensive, which means:
- New homes cost more to build, pushing prices higher for buyers.
- Developers might slow down construction, reducing housing supply.
- Renovation costs rise, making home upgrades pricier.
- Commercial real estate projects could become less viable due to increased building expenses.
- Supply chain disruptions lead to longer wait times for homebuilding and renovations.
2. Fewer Buyers, Slower Sales
If mortgage rates go up because of tariff-driven inflation, fewer people can afford to buy homes. That leads to:
- A slowdown in sales, especially in expensive markets like Toronto and Vancouver.
- Buyers getting priced out, forcing them to rent longer.
- More homes sitting on the market, which can push sellers to lower prices in the long run.
- Increased investor caution, as uncertainty makes real estate less attractive.
- Longer decision-making periods, with buyers and sellers waiting for market stability.
3. Regional Differences
Not every part of Canada feels the effects of tariffs the same way.
- Manufacturing-heavy provinces (Ontario, Quebec): If factories slow down or close due to tariffs, job losses can hurt local housing markets.
- Resource-driven provinces (Alberta, B.C.): If tariffs hit oil, mining, or lumber, real estate in these regions could take a hit.
- Smaller towns and rural areas: If tariffs push prices up in major cities, some buyers might look for homes in more affordable areas, creating new demand.
- Cross-border towns and cities: Areas reliant on trade with the U.S. might see an economic slowdown.
- Suburban and exurban markets may boom: If city prices climb too high, demand may shift to surrounding areas.
Winners And Losers In The Tariff Game
When tariffs disrupt the market, the effects ripple through various sectors of the economy. While some individuals and industries may struggle, others could find themselves in a more favourable position. Understanding who stands to win and who might lose helps to paint a clearer picture of how these economic shifts affect the housing market and beyond.
Potential Winners: Who May Benefit From The Tariffs
- Current Homeowners – If tariffs lead to a reduced supply of homes due to higher construction costs, existing properties could become more valuable. With demand staying steady, home values may rise, benefiting those who already own real estate.
- Sellers In Affordable Markets – When housing prices in major urban centers climb beyond reach due to market disruptions, buyers may turn to smaller cities and rural areas. This shift can boost demand in more affordable markets, giving sellers an advantage.
- Investors in Rental Properties – As homeownership becomes less attainable due to rising costs, more people will turn to renting. This trend benefits landlords and property investors who can capitalize on higher rental demand.
- Domestic Manufacturers – If tariffs make foreign materials and goods more expensive, Canadian manufacturers may find themselves in a stronger position. With less competition from U.S. imports, local businesses producing construction materials could experience increased sales and profitability.
- Homeowners with Fixed-Rate Mortgages – Rising interest rates can hurt borrowers, but those with fixed-rate mortgages are shielded from sudden increases in borrowing costs. Their monthly payments remain steady, making homeownership more predictable and manageable.
Potential Losers: Who May Get Hurt From The Tariffs
- First-Time Buyers – Higher home prices combined with rising mortgage rates make it harder for new buyers to enter the market. Saving for a down payment becomes more challenging, and borrowing costs can put homeownership out of reach.
- Home Builders & Renovators – Tariffs on construction materials such as lumber, steel, and aluminum can drive up costs for builders and renovators. More expensive materials may lead to project delays, reduced profit margins, and slowed housing development.
- Industries Relying on U.S. Trade – Businesses that depend on trade with the U.S. could face declining revenues if tariffs increase costs or reduce demand. Job losses in these industries may reduce home affordability in affected regions.
- Luxury Real Estate Market – Economic uncertainty caused by tariffs can make wealthy buyers hesitant to invest in high-end properties. A slowdown in luxury real estate can have ripple effects on the broader housing market.
- Borrowers with Variable-Rate Mortgages – Those with adjustable mortgage rates face rising monthly payments when interest rates increase. Higher borrowing costs can strain household budgets, making it more difficult to keep up with payments.
While tariffs can create challenges, they also open opportunities for specific groups. By understanding the winners and losers, individuals and businesses can better prepare for potential shifts in the housing market.
What Can You Do? Smart Moves For Buyers And Homeowners
With all this uncertainty, what should you do if you’re looking to buy, sell, or refinance? Here are a few smart strategies:
1. Lock In Your Mortgage Rate
If interest rates are climbing, consider locking in a fixed-rate mortgage. That way, you won’t get hit with higher payments if rates rise further.
Learn more: Canadian Mortgage Rate History
2. Shop In Stable Markets
Some cities will feel the effects of tariffs more than others. Look for markets with strong local economies and steady job growth.
3. Consider A Long-Term Investment
If you’re buying a home, think long-term. Short-term fluctuations might make the market bumpy, but over time, real estate generally remains a solid investment.
4. Keep An Eye On Government Policies
Governments often step in when trade disruptions hurt the economy. Watch for stimulus programs, tax breaks, or housing policies that could soften the impact.
5. Diversify Investments
If tariffs create uncertainty in real estate, consider diversifying into other asset classes like stocks, bonds, or international investments.
Final Thoughts: Is The Sky Falling?
While U.S. tariffs can cause turbulence, Canada’s housing market has weathered storms before. The key? Stay informed, plan ahead, and make smart financial choices.
So next time you hear about new tariffs, don’t just think about trade wars—think about how to navigate the shifting real estate landscape!
