The prospect of a growing trade war isn’t just a risk to Canada’s industries, it also poses a threat to the Canadian housing market, says RBC Economics.
In a report released Tuesday, the firm examined the outlook for the housing market in 2025 — cautioning that the prospect of rising tariffs represents a huge source of uncertainty for that segment of the economy too.
“Assessing the outlook for Canada’s housing market at this juncture is like 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,” the report said, as the downside economic risk from tariffs “casts a potentially dark shadow over the housing market.”
Notwithstanding these dark clouds, the report said that the underlying story for the market is expected to be “one of continued recovery in 2025” — as lower interest rates help stoke demand, and a growing supply of homes for sale boosts market activity.
“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,” it said.
Demand should also get a boost from changes to mortgage insurance rules that aim to help first-time buyers enter the market, it noted.
However, housing prices will likely be restrained by ongoing affordability challenges, sharply slowing population growth, and heightened economic uncertainty, the report said.
“Absent any major economic shock, we’d expect housing market demand and supply to stay balanced in the year ahead, yielding minimal price increases Canada-wide,” it said.
Indeed, it projects prices to rise nationally by just 1.4% this year, down from 2.9% in 2024.
However, the threat of a severe economic shock is also present. “Any major economic disruption, such as widespread job losses resulting from trade tensions, could dampen housing demand and weaken market confidence,” RBC said.
Communities with close ties to industries that are likely to be hit hard in a trade war, such as the manufacturing and natural resources sectors, could suffer more from a trade war, it noted — although a deep economic slump would invite further rate cuts.
“The interplay between these forces — economic risk versus monetary stimulus — will be a key factor to watch in 2025,” it concluded.
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