The housing market may not fall off a cliff, but buyers are facing a more uncertain economic landscape than at the end of 2024
Canada may have earned a temporary reprieve from the threat of Trump tariffs this week – but it’s by no means out of the woods yet with the clock already ticking down towards March 4, the new scheduled date for those measures to come into effect.
The impact of that delay on homebuying sentiment remains to be seen. While the turn of the year saw hopes of lower interest rates down the line and a busier spring market than 2024, the prospect of a huge trade war with the US fuelled fears of a big hit to Canada’s economy and a possible jump in unemployment.
Interest rates would likely slide more than expected in the event of massive US tariffs on Canadian imports, although whether that would provide a bigger boost to housing than the negative impact of a recession and potential job losses is unclear.
The outlook for Canada’s housing market is certainly cloudier than during the fall, according to financial advisor Justin Prasad (pictured top) of BlueShore Financial. He told Canadian Mortgage Professional that a strong future seemed ahead for housing in the final months of 2024 before Trump pushed forward with his threats to introduce tariffs.
“It wasn’t as murky. We kind of knew where things were going to lie a little bit, and I just think the whole tariff situation really changes where things are going,” he said. “At this moment, it’s kind of a wait-and-see approach.”
Falling interest rates brighten the picture for homeowners
One positive for homeowners, despite the economic turmoil, has been a slide in five-year Government of Canada bond yields, which had plunged below 2.64% at time of writing even after Trump and Canadian prime minister Justin Trudeau struck their deal on a tariff pause.
While recent years have seen plenty of speculation about a looming crisis for Canada’s mortgage market as renewals arrive at much higher rates than the original, COVID-era contract, Prasad said the recent dip in bond yields and the likelihood of more Bank of Canada rate cuts ahead had significantly improved the picture for renewing mortgagors.
“The positive thing is that if your fixed-rate mortgage is coming up for renewal in two months, three months, that might mean lower rates than you’re going to get currently,” he said. “That’s kind of the silver lining in all of this.”
First-time buyers continue to fuel housing market activity
In its newly released outlook for Canada’s housing market in 2025, the national housing agency highlighted first-time buyers as a key driver of overall demand across the country.
Canada Mortgage and Housing Corporation (CMHC) said millennials – most of whom were purchasing for the first time – would continue to represent an important buyer cohort in the year ahead, especially as companies intensify their return-to-office efforts.
CMHC’s latest outlook predicts a rebound in home prices and sales, driven by lower mortgage rates and new lending rules. However, affordability challenges persist, and housing starts are expected to slow through 2027. https://t.co/vkTliblsMu
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 5, 2025
“As remote work declines, we assume this group will prioritize being closer to jobs, boosting sales recovery in larger urban markets,” CMHC wrote.
Those buyers may be advised to gravitate toward fixed rates, Prasad said, for the security and lack of volatility they offer for the years ahead.
“If this is the first place that you’re buying, your first real mortgage, you want to know what your payment is going to be over the next five years, because you just got into the market,” he said. “You want to ease yourself in and get knowledgeable about it.
“So I look at it from that perspective: for mortgage rates right now, it’s kind of what’s within your risk tolerance versus where rates are heading because at this point, it’s such a wide range currently.”
While CMHC said Trump’s tariffs could push up unemployment and drag Canada into a recession if they’re severe enough, it isn’t expecting the housing market to crash in its medium scenario.
US tariffs of 25% on 10% on Canadian goods and retaliatory measures by Canada would still see the Canadian economy eke out modest growth in 2025, its report said, with housing market activity also projected to improve “despite the economic headwinds.”
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