U.S.-Canada Trade War: How Tariffs Could Impact Real Estate

Good Morning,

Welcome to this special edition of RealEdge, where we explore the potential impacts of the ongoing U.S.-Canada trade war on the Canadian real estate market. As of February 3, 2025, escalating tariffs are reshaping economic conditions, and it’s crucial to understand how these changes could influence home prices, mortgage rates, and investment strategies.

📌 In Today’s Newsletter:

1️⃣ Understanding Tariffs and the Current Situation
2️⃣ The Impact on the Canadian Real Estate Market
3️⃣ Regional Outlook: How Different Markets Could Be Affected
4️⃣ What This Means for Homebuyers, Sellers, and Investors
5️⃣ Long-Term Considerations

🇨🇦 Understanding Tariffs and the Current Situation

On February 1, 2025, U.S. President Donald Trump imposed new tariffs on Canadian imports:

• 25% tariff on most Canadian goods

• 10% tariff on Canadian energy exports (oil, gas, uranium)

In response, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs:

• Phase 1: 25% tariffs on $30 billion worth of U.S. goods (effective February 4, 2025)

• Phase 2: Additional tariffs on $125 billion of U.S. goods (pending a 21-day review period)

These trade measures are expected to have broad economic consequences, particularly in sectors that drive Canada’s real estate market. (CBC News, Financial Post)

1️⃣ Higher Construction Costs and Housing Supply Constraints

The Canadian construction industry relies heavily on U.S. imports for materials, including:

• $14 billion annually in U.S. steel and aluminum

• $3.5 billion in U.S.-sourced glass products

With tariffs in place, experts predict:

✔ 10-15% increase in construction costs, leading to higher home prices
✔ Delays in new housing developments, worsening supply issues in cities like Toronto and Vancouver
✔ Potential price inflation for condos and detached homes due to rising material costs

(New Homes Alberta)

2️⃣ Economic Slowdown and Buyer Confidence

Tariffs could trigger a broader economic downturn, leading to:

✔ Slower home sales as job uncertainty rises
✔ Declining demand in markets reliant on exports, such as Calgary’s oil-driven housing sector
✔ Homebuyers delaying purchases due to fears of economic instability

(Financial Post)

3️⃣ Interest Rates and Mortgage Pressures

The Bank of Canada (BoC) now faces a policy dilemma:

✔ Lower interest rates to stimulate economic growth
✔ Manage inflation pressures from rising import costs

Potential scenarios:

📉 Rate Cuts: Cheaper borrowing could boost homebuying activity
📈 Inflation Concerns: Higher prices for goods may keep rates steady
⚠ Variable-Rate Mortgages: Borrowers could face market uncertainty if rate shifts occur

(CTV News)

📍 Regional Outlook: How Different Markets Could Be Affected

✔ Calgary: The oil sector is vulnerable to U.S. energy tariffs, potentially reversing recent home price gains.
✔ Toronto & Vancouver: Housing demand remains high, but rising material costs may push prices even higher.
✔ Montreal & Halifax: Rental markets could see increased demand as homeownership becomes more expensive.
✔ Renovation Sector: Higher U.S. material costs may slow renovation projects, impacting contractors and homeowners.

(Reuters)

🔑 What This Means for Homebuyers, Sellers, and Investors

For Buyers:
✔ Act quickly before construction costs drive prices higher.
✔ Secure mortgage pre-approvals to lock in current interest rates.
✔ Consider resale homes instead of new builds to avoid price volatility.

For Sellers:
✔ Price competitively to attract hesitant buyers.
✔ Highlight value-driven features like move-in readiness and energy efficiency.
✔ Be prepared for longer sales cycles in impacted regions.

For Investors:
✔ Look for undervalued properties in areas with resilient job markets.
✔ Consider REITs (Real Estate Investment Trusts) for lower-risk exposure.
✔ Monitor government responses for potential economic stimulus measures.

(Dentons)

📈 Long-Term Considerations

✔ Resilient Market Fundamentals: Real estate has historically rebounded from economic disruptions.
✔ Supply-Demand Imbalances: Housing shortages in key markets may keep prices stable despite economic uncertainty.
✔ Government Interventions: Policies such as housing tax breaks or infrastructure spending could mitigate risks.

While short-term volatility is inevitable, real estate remains a long-term investment. Staying informed and adaptable will be key to navigating this evolving landscape.

(Al Jazeera)