Your Guide to the Chaos, the Pause, and What Comes Next...
The Tariff Tango: A 30-Day Timeout (But Hold Your Breath)
What Just Happened?
In a whirlwind week, President Trump announced 25% tariffs on most Canadian goods (10% on energy), triggering fears of a trade war. Canada retaliated with its own 25% tariffs on $155B of U.S. products.
But on Monday, a temporary truce emerged: a 30-day pause on tariffs for Canada and Mexico (but not China) after both countries agreed to bolster border security efforts.
Key Takeaway: This pause is a reprieve, not a resolution. Markets breathed a sigh of relief (the loonie rebounded slightly), but uncertainty still looms.
How Tariffs Could Shake the Canadian Housing Market
The truth is, we don't know what's going to happen. However, we've dug in and came up with three potential scenarios. Each scenario has potential impact for home buyers, sellers, and current homeowners.
Scenario 1 – If Tariffs Resume After 30 Days
Construction Costs Go Bananas
- Material Mayhem: Canada’s construction industry relies heavily on U.S. imports (steel, appliances, drywall, and lumber). Tariffs would spike already-high consutrctions costs, with RBC estimating a 3.4–4.2% hit to GDP if sustained.
- Delays & Cancellations: Builders like RESCON warn of project slowdowns as supply chains scramble. Toronto’s already fragile pre-construction market could see more pauses and more projects may go belly up!
- Home Prices: Builders pass costs to buyers. Expect higher prices for new homes, especially in markets like the GTA where development fees are already crushing affordability.
Recession Risks & Buyer Sentiment
- A prolonged tariff war could tip Canada into a “mild recession” (BMO), pushing unemployment above 7%. Fear of job losses may cause buyers to freeze and await certainty and stability, therefore shrinking demand, and killing the momentum caused by recently-lowered interest rates.
- Speaking of… Lower Rates? The Bank of Canada could slash rates to stimulate growth, offsetting some pain for would-be buyers and current homeowners, millions of which will see their mortgage renewing this year and next (more on mortgages below).
Scenario 2 – If the Pause Becomes Permanent
- Market Stabilizes: Construction costs level off, buyer confidence rebounds. Ongoing initiatives to lower development charges may make homes more affordable.
- Rate Cuts Still Likely: Even without tariffs, Canada’s economy was fragile. The BoC may cut rates to spur growth, keeping borrowing costs low.
Mortgages in the Crosshairs: Fixed vs. Variable RatesFixed Rates Are Falling (For Now)
- Bond Yields Plunge: Canada’s 5-year bond yield hit a 3-year low (2.55%), pushing fixed mortgage rates down. They quickly bounced back at the end of a "rollercoaster" type of day.
- Why? Investors flock to safer bonds amid trade uncertainty, lowering borrowing costs for banks.
Variable Rates Could Drop Too… Maybe
- The BoC faces a dilemma: tariffs cause inflation (higher import costs) and slow growth (rate cuts needed).
- Prediction: The BoC prioritizes growth. BMO expects six rate cuts by October, dropping the policy rate to 1.5%. Variable rates would follow.
Renewal Advice
- Renewing Soon? If bond yields, continue to drop, it may results in attractive fixed rates, making locking-in a fixed rate a "I want to sleep at night" type of bet.
- Renewing in 6+ Months? Wait. If tariffs escalate, deeper BoC cuts could make variable rates cheaper and more attractive.
Should You Buy or Sell This Summer? If You’re Selling…
- Short-Term Pain: Tariff fears could spook buyers, leading to inventory spikes and softer prices (plus it's still winter time - a typically slow season for real estate).
- Silver Lining: Lower mortgage rates might keep demand afloat and there's lots of pent-up demand with buyers sitting on the sidelines.
If You’re Buying…
- Wait for Clarity: The next 30 days are critical. If tariffs resume, prices could dip as sellers panic.
- Rate Advantage: Try to secure a lower fixed rate now (sub-4% insured rates are already here).
The Wildcard:
A recession could mean lower prices but stricter mortgage qualifying rules.
The Bottom Line: Prepare for Chaos, Hope for Calm
- Watch the 30-Day Window: If Trump and Trudeau strike a deal, the housing market dodges a bullet. If not, brace for higher costs and rate cuts.
- Builders Will Adapt: Expect creative workarounds (e.g., Korean appliances instead of U.S. brands).
- Government Lifelines: Programs like wage subsidies or GST cuts on new builds could soften the blow.
Final Thought: Tariffs are a gamble, but Canada’s housing market has weathered worse. Stay informed, stay flexible—and if you’re renewing your mortgage, call your broker today. Whether you're buying, selling, refinancing a mortgage, transferring a mortgage or something else, Deeded is happy to help with the closing transaction. Get in contact with us today.
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