Economic tensions could further weaken homebuyer demand and disrupt development projects
The ongoing trade war between Canada and the United States is raising new concerns for the real estate industry, as tariffs threaten to drive up costs and disrupt an already fragile housing market recovery.
Since March 4, the US has imposed 25% tariffs on Canadian goods, prompting swift retaliation from the Canadian government. While the battle over trade plays out, developers and economists warn that rising costs, a weakening Canadian dollar, and lower consumer confidence could dampen the housing market’s rebound just as mortgage rates begin to ease.
Developer Christopher Wein, chief operating officer at apartment developer Equiton, said his Ontario-based company is already reassessing its supply chain, looking beyond the US for everything from refrigerators to elevator parts to avoid higher costs.
“The obvious effect is that certain materials and supplies are going to get more expensive,” Wein told CoStar.
The declining value of the Canadian dollar is also a concern, making imported goods even more costly. Wein believes this could erode consumer confidence, especially at a time when economic indicators were beginning to point toward a slow recovery.
“At a time when the Canadian economy needs more consumer confidence, Trump has put a grenade into that,” he said.
Jon Love, executive chair of Toronto-based KingSett Capital, which manages $18 billion in real estate funds, took a more optimistic stance, suggesting that Canada should focus on strengthening its domestic economy rather than dwelling on US policies.
"Ignore all the noise and drama south of the border and focus on what we can control – domestic free trade, resource extraction, reducing corporate regulations, and taxation," Love said in a LinkedIn post. "What doesn't kill us (tariffs won’t) makes us stronger."
Canada retaliates
In response to the US tariffs on nearly all Canadian and Mexican goods, Prime Minister Justin Trudeau announced immediate countermeasures, placing a 25% tariff on US imports valued at CA$30 billion (US$21 billion).
Ontario, Canada’s largest province, also escalated trade tensions by placing a 25% export tax on electricity supplied to 1.5 million US households in Minnesota, Michigan, and New York. Ontario Premier Doug Ford has even threatened to completely cut off power exports to the US if trade tensions escalate further.
“There are no winners in a trade war,” Trudeau said, though his statement did little to stop US President Donald Trump from threatening additional tariffs in retaliation.
Not all provinces will feel the impact of the trade war equally. A Desjardins report highlighted that Ontario, Quebec, and Manitoba are the most vulnerable due to their reliance on US trade and manufacturing.
On the other hand, provinces like Alberta, Saskatchewan, and Newfoundland may be somewhat shielded by lower tariffs on energy exports, while British Columbia and Nova Scotia are expected to see minimal impact due to their more diverse trading relationships.
Desjardins chief economist Jimmy Jean noted that Ontario’s auto industry and Quebec’s export-driven businesses are particularly at risk, while Western Canada’s oil and gas sectors may fare better under the current trade environment.
“Canadians can’t control this trade spat, but they can choose where and how to spend their money,” said Shannon Terrell, NerdWallet Canada's financial expert. “Shopping smarter may help soften the tariff blow by buying in bulk, swapping US brands for Canadian alternatives and leaning into coupon and price-matching apps to scout for deals.”
Housing market recovery at risk
The real estate industry is already feeling the impact of rising borrowing costs, and now, experts warn that the trade war could put additional pressure on a fragile housing market recovery.
Doug Porter, chief economist at the Bank of Montreal (BMO), warned that tariffs could weigh on consumer confidence and stall the housing recovery, which was already expected to be slow-moving.
"The housing market recovery in Canada, as gradual as we expected it to be in the absence of tariffs, could be dampened this year by the confidence-sapping trade war before resuming in 2026 on lower mortgage rates," Porter said.
Read next: BoC now expected to slash rates further as trade crisis escalates
Clay Jarvis, mortgage expert at NerdWallet Canada, noted that while the trade war may not immediately impact home prices, it could scare potential buyers out of the market.
"A trade war with the US won’t have an immediate impact on home prices, but it could have a chilling effect on demand," Jarvis said. "If the high cost of living already has some buyers doubting they can afford a mortgage, another uptick in their daily expenses will definitely knock them to the sidelines.
“Depending on how long this tariff spat lasts, we could see serious deterioration in the labour market, too. If someone is worried their job may not be there in a few weeks, they’re not going to be buying a home."
Industrial sector faces biggest threat
While the residential housing market may experience delays in recovery, experts warn that the industrial real estate sector could take an even bigger hit due to its dependence on trade and manufacturing.
A report from Marcus & Millichap noted that industrial real estate, which has been booming in recent years, is now at risk of a downturn. Manufacturing and warehousing companies, which rely heavily on cross-border trade, could pause or cancel expansion plans as they reassess the long-term impact of the tariffs.
"Tariffs could dampen demand across the manufacturing, warehousing and transportation industries," Marcus & Millichap said. "The industrial sector will feel an immediate impact. Development projects will likely be postponed or cancelled, but the immediate demand shock is expected to outweigh any longer-term supply-side adjustments. As a result, the national vacancy rate could rise to a higher level in 2025 than initially forecasted."
Colliers Canada echoed these concerns, pointing out that Canada’s industrial real estate boom had been partially fuelled by online shopping and warehouse demand from exporters. With US tariffs in place, companies occupying large warehouse spaces could face operational disruptions, potentially leading to higher vacancy rates and lower leasing activity.
“These industries are much larger users of industrial space than office space, as they need to warehouse and distribute… so it’s possible industrial will take the brunt of the blow,” said Adam Jacobs, head of research at Colliers Canada.
With Canada’s economy deeply tied to the US, experts say the country must diversify its trade relationships to minimize future risks.
The Conference Board of Canada suggested that Canada strengthen its trade partnerships with the European Union, which is also facing tariff threats from the US. European buyers may begin looking to Canada as an alternative supplier, particularly for energy, automotive, and manufacturing products.
"The European Union is also facing tariff threats from the United States. As a result, Canada could shift some of its imports from American suppliers to European ones. At the same time, European buyers may look to Canada as an alternative to American products, especially for their energy needs," the board said in a statement.
Meanwhile, some of Canada’s largest pension funds have already begun shifting investments away from the US The Canada Pension Plan Investment Board (CPPIB) recently announced it was selling its stake in US energy producer Calpine Corp. and investing in real estate development in São Paulo, Brazil, as part of a strategy to diversify beyond North America.
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