Brace yourself – The impact of tariff on Canada’s real estate

BY JAY BRIJPAUL

U.S. President Donald Trump’s remarks about imposing tariffs on Canadian imports, the Canadian economy, including the real estate market, could face challenges. Tariffs are taxes on imported goods that make them more expensive for consumers and businesses. Governments often use tariffs to protect local industries or respond to trade disputes.

Here’s how these tariffs and potential retaliation might impact the broader economy and housing market. Trump’s tariff proposal isn’t just talk. If implemented, Canada is expected to retaliate with its tariffs on U.S. goods, targeting automotive, agriculture, manufacturing, and energy industries. According to CTV News, Canada has already drafted a retaliation plan that could be revealed shortly after February 1^st.

Tariffs increase the price of imported goods, and if Canada retaliates, the cost of US goods will rise, contributing to inflation. With the U.S. supplying about 50% of Canada’s imports, tariffs could significantly raise living costs for Canadians, leading to higher consumer prices and potentially runaway inflation. The Bank of Canada (BoC) may have to raise interest rates to combat inflation, which goes against its recent efforts to boost economic recovery through rate cuts.

If the BoC raises its policy rate to curb inflation, rising interest rates could severely affect Canadians. Such a rise could strain household budgets, increase mortgage delinquencies, and reduce housing demand. Businesses would also face higher borrowing costs, slowing economic growth and exacerbating financial stress for indebted households. Around forty percent of homeowners are estimated to renew their mortgages this year. These homeowners locked in their mortgages during the pandemic at low rates. If interest rates climb, many homeowners will face financial hardship and default on their mortgage payments. Canada’s major banks could struggle with increased loan losses to an extent not seen before.

The real estate market, already cooling, with home sales down 19% year over year, could face further declines. A high interest rate will make fewer buyers qualify for a mortgage, and the new capital gains tax will also reduce the number of investors buying residential properties. If interest rates climb, many will offload their portfolios, triggering a surge in homes for sale, and prices can slip further.

Building new homes would become expensive since Canada relies on US imports. Construction would halt, and consumers would avoid buying expensive items such as automobiles, which can trigger massive layoffs. The high cost of living, compounded with high unemployment, is a recipe for recession. With Canada’s ballooning debt, the Canadian dollar will have a free fall, resulting in an even higher cost of living.

We must take this threat seriously. If the US imposes a tariff on Canadians, we might be unable to withstand the financial meltdown. We live in uncertain times and must protect ourselves if the US imposes a tariff on us. Homeowners on variable-rate mortgages should consider locking their mortgages with fixed-rate mortgages. If your mortgage is due for renewal later this year, you can approach your lender to offer you an earlier renewal and blend the current interest rates with the old rates.

Buyers should ask their lenders to lock in the interest rates at today’s rates. Lenders usually hold the rates for up to three months. With this guarantee, if a tariff is imposed, home prices will fall, and you can get a bargain, knowing that you are locked in a low rate.

If there is a tariff, it will be short-lived because the Canadian Government will give in to US demands and prevent our economy from collapsing. If you are planning to sell your home, do not panic; the tide will change. In this market, it is best to sell your home before buying.

Investors should hold off on their purchases because prices may fall when the tariff is imposed, and that would be the best time to buy prime real estate. If you are investing in second mortgages, keep in mind that if home prices fall, there is enough equity in the home for you.

While it’s uncertain whether the US will impose tariffs or how Canada will respond, one thing is clear: we’re on shaky ground. The best way to weather potential economic turbulence is to spend less, save more, and stay informed.