February 15th, 2025. Tariff’s and Canadian Real Estate
What a wild start to February in Canada.
Tariff’s seem to be all that’s in the news cycles in the past 2 weeks, and from all the chatter about Canada becoming the 51st state, what can we make of what we are seeing in the news these days? How will this affect Canadian real estate this year, in 1 year, 5 years?
First of all, it is imperative to stop and take a deep breath. If you take a look at the stock market, on February 3rd, the day that the tariffs were supposed to take affect on Mexico and Canada, the Dow Jones dropped significantly, only to finish the day at par once a 30 day ‘pause’ was given. The market realized that Trump was only bluffing, and even with the steel and aluminum tariffs announced this week, the stock market has barely budged.
In other words, Trump cried wolf once, and now talk of tariffs has had no affect. If I know one thing about the American people, there is one thing they will not tolerate, and that is inflation and price increases. I don’t believe that tariffs will come, and if they do they are an inflationary tax on Americans that will be very short lived, but the damage so far is real.
You may have also noticed that the Canadian dollar has been rising rapidly the past couple of weeks. Ask yourself, would the Canadian dollar rise if there were imminent, crushing tariffs hitting out country? I believe the reason for the surging loonie is that as a country we have woken up and will now unleash the full economic power of our resource economy. Regardless of who forms government this year, we must become economically strong and immediately get out act together. I think whoever leads this country will make it their top priority.
I believe what Trump really wants is our resources, or cheap access to them. The USA relies on us heavily for their country and industries, and these would be very hard for them to replace. Discounted oil and gas, potash for their crops, lumber to rebuild Los Angeles, and Uranium for their nuclear reactors, not to mention their tourism sector (if Canadians don’t visit) and the current buy Canadian movement is seemingly already having an impact.
Tariffs on US consumers, not to mention reciprocal tariffs would dramatically drive up the cost of gasoline, and many other products within America. Canada would not win a trade war, however I do not believe it will come to this, and all of this is simply pre-negotiations for NAFTA 3.0. Canada may have to make (long overdue) concessions like granting access to the telecom, banking, and dairy supply management sectors that are heavily monopolized in Canada and this needs to be changed for our own benefit.
So, what about Canadian Real estate? I see three three items to watch out for:
Resource Prices – specifically oil and gas, uranium, potash, lumber, and steel. The provinces that will do the best on a resource boom would be Saskatchewan and Alberta.
Unemployment – Canadian unemployment remains elevated at 6.6% compared to America at 4.0%. If unemployment rises, and/or tariffs do come in it will cause uncertainly in major purchases, including housing. The last Canadian housing crash (1989 to 1996) was largely due to employment uncertainty. Residential housing will most likely be affected.
Interest Rates – Bank of Canada and CMB bonds have dropped slightly and will likely be 0.25% lower by the summer. This will help fixed rate mortgages for residential and commercial properties, and bridge loans for those doing the BRRRR strategy. On the BOC overnight rate, it is widely expected that more cuts will be coming, 0.25% to 0.5% as we get a clearer picture of what will happen on the tariff front as we get into march.
I would personally avoid buying a personal residence right now unless you are able to secure a good deal, but there be some additional pain to the more expensive markets of Ontario and BC. Smaller single family and townhomes will be a solid play if you purchase them to become rentals. This is because in times of uncertainty people tend to rent, so I see some additional pressure on residential property as we get to the later half of 2025.
Multifamily is still going strong, and I anticipate it to be a record year in terms of price per door. Cap rates could compress somewhat as borrowing rates will also come down, although vacancy rates will rise slightly and rent increases taper off. Having said that apartment buildings will likely rise in price around 10% over the next 12 months.
This would be a great opportunity to lean out your assets in terms of looking for efficiencies. Go through your statements and set up a budget with your property manager. Look for areas to cut, or value that can be created for more rent. Operators who run their business this way will come out of the current storm well ahead of the pack.
There will most likely be some short term pain, and even recession, however I believe that long term this wake up call will serve Canadians very well in years to come as we wean off of our dependence on the US and chart our own destiny. There is simply no going back to the status quo.
Happy Investing!
Cory Sperle
