How do Tariffs Impact Housing in Canada?

The tariff tumult has rocked the global economy from North America to Asia. Canada, a critical trading partner for the United States, is stuck in the crosshairs of the new administration’s trade agenda – and the country could endure a shellacking the longer the trade dispute lingers.

During the April 2 “Make America Wealthy Again” speech, President Donald Trump announced a universal baseline tariff of ten percent and higher reciprocal tariffs, which have since been paused. Many Canadians were pleased that the nation was omitted from either list, particularly because Canada was subjected to the previous tariff regimes on automobiles, aluminum, and steel.

Indeed, Canada is not out of the woods just yet, and Ottawa’s recent actions signal that conditions could remain tense in the coming weeks or months.

Suffice it to say that the global levies announced by President Donald Trump are likely to impact Canada’s housing and mortgage sector significantly. The tariffs can affect construction costs, mortgage rates, and housing affordability for the average Canadian.

According to a research note by RBC Economics, Canada imported approximately $7.5 billion worth of steel and $9.4 billion worth of aluminum products from the United States last year. Canada accounts for nearly one-fifth of U.S. steel imports and about half of aluminum imports. Even HVAC unit and appliance costs are likely to increase since they are often assembled in the United States and brought to Canada.

In addition, many Canadian builders purchase crucial parts from the United States, especially from steel companies based there.

Lumber, meanwhile, is expected to be next on the White House’s tariff hit list. While Canadian lumber has been exempted from higher import duties – which could provide temporary breathing room to the Canadian real estate market – markets are bracing for a sudden announcement confirming new tariffs.

Should they go into effect, the tariffs will put cost pressure on Canadian housing.

The problem is that building material prices have climbed in Canada since the pandemic. With potential U.S. tariffs, the National Association of Home Builders (NAHB) estimates that nearly $9,000 would be added to the average cost to build a new single-family home. The increased cost can be attributed to labour shortages emanating from ubiquitous trade uncertainties, ballooning prices for materials like steel and gypsum, widely anticipated supply chain disruptions again due to trade uncertainties, and the ongoing 14.5 percent tariff on Canadian lumber.

As for broader inflation developments, economists have sounded the alarm that tariffs will likely increase inflation rates, resulting in higher interest rates due to cost increases, reduced market competition, supply chain disruptions, and retaliatory measures. Will this force the Bank of Canada to cut interest rates further? The central bank has already employed pre-emptive rate cuts – adopting the famous “insurance rate cut” scheme proffered by former Federal Reserve Chair Alan Greenspan in the 1990s – but whether the institution can continue cutting remains to be seen.

Additionally, internal and external forces affect the Canadian mortgage market, from the Federal Reserve to the bond market. If these tariffs worsen inflation south of the border, borrowing costs will likely increase across North America.

What This Means for Canada’s Housing Situation

Canada is already in a housing crisis, prompting experts to demand more housing units.

According to a 2023 study by the Canada Mortgage and Housing Corporation (CMHC), Canada needs to build 5.8 million new homes by 2030 if it wants housing affordability for Canadians. With the tariffs, construction costs will increase, and builders and investors might reconsider their plans before taking on new housing projects.

Remember, it is not just about steel. Higher prices will affect everything related to housing, whether cement, flooring, appliances, or tiles. Housing projects could be shelved, and the demand and supply gap could worsen. The last thing Canada needs right now is to increase homebuilding prices.

A trade spat could also harm the broader economic landscape.

In addition to the direct impact on house-building costs and the rise in mortgage rates, another potential problem is the risk of job losses resulting from trade tensions. Canadians are already struggling with the increase in the cost of living. With jobs at risk, layoffs, and a lack of new opportunities, housing demand could decrease, and the overall confidence in the real estate market could decrease. Existing homeowners could feel the pressure when renewing their mortgages, and new borrowers would find it difficult to afford monthly payments and pass approval processes. All this could hinder investment in housing.

An Economic Shift

In the end, the fact is that tariffs and trade wars result in economic shifts and uncertainty. This can hurt any market, and the housing market is no different. Buyers will be unable to buy because of rising prices, and investors will be hesitant to build because of rising costs. Lack of economic stability, reduced job opportunities, inflation, and high interest rates all delay major financial decisions such as buying a home. Housing development will slow down, the supply of homes will tighten, and demand will further push prices up, which will likely cause a major shake-up in the housing market.

Trade tensions are never suitable for any region. They can influence prices, impact monetary policy, and generally make things expensive. With all these pressures looming, many factors could be played out, including the Bank of Canada lowering interest rates, making mortgages cheaper, and potentially stimulating housing demand.

The current environment is uncertain. This is the one thing every market participant dislikes.

Tariffs and trade tensions could reshape Canada’s housing market—are you prepared?
Connect with a trusted RE/MAX agent today to understand how these changes could impact your buying, selling, or investment plans, and make your decisions with confidence.