The threat of U.S. tariffs looms over Canada’s housing market
The Canadian housing market finds itself at a critical juncture in 2025, as the threat of U.S. tariffs adds uncertainty to an already delicate economic environment.
According to RBC Economics, “the significant risk that tariffs pose to Canada’s economy casts a potentially dark shadow over the housing market.” With consumer confidence playing a pivotal role, potential economic turbulence could unsettle both buyers and sellers.
Robert Hogue, assistant chief economist at RBC, likened the housing outlook to “putting a price on a home before an earthquake—it’s hard to know what shape the structure will be in at the end of the day.” While the U.S. administration paused the implementation of blanket tariffs earlier this month, Hogue suggests the introduction of targeted measures, such as a 25 per cent tariff on Canadian steel and aluminum imports means that trade tensions aren’t going away anytime soon.
Lower interest rates
Aside from looming economic risks, some bright spots are emerging for Canada’s housing market. RBC predicts a recovery in 2025, fueled largely by declining interest rates. Lower borrowing costs are expected to unlock pent-up demand and reduce ownership expenses, bringing much-needed momentum into the market.
Buyers will also benefit from an increasing inventory of homes for sale. “These dynamics were set in motion in the second half of 2024 and have longer to run in the year ahead as we expect interest rates to fall further,” Hogue notes. Mortgage insurance rule changes, introduced in December, are also expected to bring more first-time homebuyers to the market.
Affordability, immigration cuts and tariff risks
Perhaps unsurprisingly, affordability challenges remain a hurdle. While lower rates provide some relief, RBC warns that “strained affordability—despite easing somewhat—will continue to limit buyers’ capacity or willingness to bid up prices aggressively.”
Compounding uncertainty is a sharp slowdown in immigration, as the federal government scales back annual targets. Population growth, a key driver of housing demand, is projected to decline substantially, and will likely “temper upward price pressure.”
