The president-elect has sounded an aggressive tone on his Canada approach – but homebuyers appear undeterred by economic uncertainty
Interest rates are falling, the national housing market is picking up and consumer confidence is slowly creeping upwards – but the biggest curveball of them all is whistling towards the Canadian economy in 2025.
Donald Trump returns to the White House on January 20 with vows to use “economic force” to annex Canada grabbing the headlines this week and drawing alarm and bemusement in equal measure.
The president-elect had already threatened huge tariffs on Canadian goods crossing the border, and doubled down on his pledge to bludgeon the economy north of the border at a Press conference this week.
Economists have already underlined the havoc Trump’s plans could wreak on the Canadian economy, even if financial markets have remained sceptical about whether they’ll actually come to pass.
Forecasts for the loonie’s performance in 2025 plunged when Trump’s first warnings arrived of a 25% tariff on all Canadian imports to the US.
No homebuyer panic over economic storm clouds – yet
This week’s renewed threats arrived amid a flurry of political news, including the announcement of Justin Trudeau’s intention to resign as Liberal Party leader and prime minister – but it’s simply too early to say what impact those developments will have on the housing and mortgage markets, according to mortgage agent and commentator Victor Tran (pictured below).
He told Canadian Mortgage Professional that looming economic uncertainty had not factored in most clients’ deliberations about entering the market. “They’re not really concerned with market conditions and that political landscape,” he said. “They’re ready to buy…. It’s hard to really time the market.
“The people that have been sitting on the sidelines waiting to buy – they’ll still continue to buy, regardless of what’s happening in the market and the ones that are entering, it could be a good time.”
Canada’s economy faces a challenging road ahead, with slower growth expected to define the nation’s economic trajectory for the next few years, according to Frances Donald, chief economist at the Royal Bank of Canada (RBC). https://t.co/nNYCeoQej0
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 8, 2025
That’s because the outlook for interest rates, for now, appears promising. Many lenders’ fixed rates have been sticky, hovering around the low-to-mid-fours – and variable rates are increasingly attractive, even if buyers weighing up a variable option will be keeping one eye on whether the Bank of Canada changes its approach in the months ahead.
“Depending on the situation, some people are getting variable rates that are lower than fixed rates,” Tran said, “and based on the messaging from the Bank of Canada – of course they’re going to be treading a lot of caution now with dropping rates because of what’s happening in the political landscape, but if the Bank of Canada proceeds with another rate drop in January and another in March, then that variable rate that customers sign for would definitely be lower than current fixed rates.”
It’s also too soon to tell whether new mortgage rules introduced in December – access to 30-year amortizations and the insured mortgage cap hike – have had an impact in spurring increased homebuyer demand. But those will help, Tran said, with the 30-year option likely offering extra breathing space even for those clients who can already afford a 25-year mortgage.
While an anxious few years could be in store for Canada’s economy, homebuying sentiment doesn’t seem to have been deterred by the recent instability. "Life goes on," Tran said. "And people realize that they just need to move on and deal with the issues at hand.”
How will the Bank of Canada act in the months ahead?
A flurry of interest rate cuts by the central bank in the second half of 2024 helped spark some life into Canada’s housing market, with further cuts expected to follow in the opening months of this year.
Still, the Bank’s summary of deliberations for its December rate announcement revealed the incoming US administration’s approach as a “major new source of uncertainty” with the potential impact dependent on multiple factors – “including the scope and size of the tariffs and any retaliatory measures that are taken, all of which are impossible to predict.”
The uncertainty swirling around those plans could already be weighing against the outlook for 2025, the Bank said, although it wasn’t possible to say for sure without more details – and while confidence was rising on a recovery in per capita spending and housing, “the overall growth outlook was now softer than in October.”
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