First – Come On – Let’s Address This Snow Madness

Over the past four days, Ontario has been living up to its reputation as a snow globe, especially in the southern and central parts of the province.

Southern Ontario got hit the hardest:

• Toronto woke up on February 13 to over 20 centimeters of snow, the most it’s seen since March 2023, so it’s safe to say the city got a little too much of a “white” surprise.
• Kitchener-Waterloo didn’t get hit with anything too outrageous, but they’re used to seeing around 5 centimeters of snow in February, which is basically just a light dusting to keep things interesting.

Eastern Ontario had its usual flirtation with snow, with Ottawa seeing its fair share but no official numbers to be found (because it’s probably just a bit too busy shoveling).

In Central Ontario, London got about 38 centimeters of snow in February, but who’s counting? The snowflakes are really just getting together for a community meeting at this point.

Lastly, Thunder Bay had snow for sure, but the numbers are still on a coffee break. Let’s just assume it’s a snowstorm of epic proportions, because why not?

Now That We’re Exhausted From Shoveling; The Point At Hand

In early 2025, U.S. President Donald Trump hinted at imposing tariffs on Canadian imports, potentially as early as February 1st. This announcement has sparked concern about the ripple effects on the Canadian economy, particularly in industries like automotive, agriculture, food, manufacturing, and energy. The Canadian government, in turn, is expected to retaliate with its own tariffs on U.S. goods. If these tariffs go into effect, the implications could be far-reaching—especially for Canada’s real estate market.

What Are Tariffs and Why Do They Matter?

Tariffs are essentially taxes on imported goods. They raise the price of foreign products, making them more expensive for consumers and businesses. While tariffs are often used as a tool for economic protectionism or in response to trade disputes, their unintended consequences can be significant, especially when they lead to price hikes, inflation, and interest rate adjustments.

In this case, if the U.S. moves forward with these tariffs and Canada retaliates, the price of U.S. imports could rise sharply. Canada imports a large volume of goods from the U.S.—everything from food and machinery to vehicles and household items. With the U.S. accounting for roughly 50% of Canadian imports, the impact could be widespread, resulting in increased living costs for Canadians across the board.

Inflation, Interest Rates, and Housing

The economic fallout from tariffs could create a troubling cycle of rising prices. As the cost of U.S. goods climbs, inflation will likely follow, putting pressure on the Bank of Canada (BoC) to respond. To curb inflation, the BoC may have to raise interest rates—potentially by as much as 3%. A rate hike of this magnitude would have serious consequences for Canadians, particularly those with mortgages or plans to borrow money.

Consider this: if you have a variable-rate mortgage at 3%, a 300 basis point (3%) rate hike could push your mortgage rate to 6%. For a $500,000 mortgage, this could increase your monthly payments from approximately $2,370 to $2,998—a significant strain on household budgets. Not only would higher rates make borrowing more expensive for consumers, but businesses that rely on credit for expansion could also face higher costs, leading to slower economic growth.

The Real Estate Market: A Slowdown on the Horizon

In Canada’s already cooling real estate market, a rise in interest rates would likely dampen housing demand even further. Homebuyers, particularly first-time buyers, who are already grappling with rising prices, may be forced to delay purchasing or opt for smaller properties. Sellers, facing reduced demand, could lower their asking prices to attract buyers. Investors, wary of economic uncertainty, may pull back, which could lead to a slowdown in new housing developments.

The Canadian Real Estate Association (CREA) recently reported a 19% year-over-year decline in home sales, and prices are still recovering slowly from the significant cooling period in recent years. Major markets like Toronto and Vancouver have seen prices fall well below their 2022 peaks, and the imposition of tariffs and resulting economic fallout could further delay the recovery.

Construction and Local Economies: The Ripple Effect

In addition to the housing market, construction could take a hit as well. Many materials used in Canadian construction, like steel and lumber, are imported from the U.S. With tariffs raising the price of these goods, builders may delay or cancel projects, which could lead to reduced housing supply. This not only impacts the real estate market but also puts jobs in the construction sector at risk.

Additionally, local economies, particularly municipalities, could feel the strain. Fewer property transactions could result in lower revenue from land transfer taxes, potentially leading to budget shortfalls for cities and towns. Retail sectors tied to home furnishings and renovations could also experience a downturn, as higher costs and reduced construction activity would affect sales.

The Potential for Increased Loan Losses

The Canadian banking system, which is generally known for its stability, may also face challenges in the wake of this economic turbulence. Analysts predict that the combined effects of tariffs, inflation, and rising interest rates could push loan losses higher than usual, possibly surpassing 1% of loans. While Canada’s Big Six banks are well-capitalized, even they could struggle with increased delinquencies, especially if higher mortgage rates push more Canadians into financial distress.

How Can Canadians Prepare?

Given the potential impacts of tariffs, inflation, and rising interest rates, it’s essential for Canadians to consider their financial strategy moving forward. Here are a few steps to help navigate these uncertain times:

1. Homebuyers: If you’re planning to buy a home in the near future, now may be the time to lock in a fixed-rate mortgage. This can help shield you from potential interest rate hikes, providing more financial stability in the face of rising costs.
2. Investors: Diversify your portfolio to mitigate risks tied to real estate. With market uncertainty looming, having investments in other sectors can help protect your assets.
3. Homeowners with Variable Mortgages: If you have a variable-rate mortgage, consider exploring options for locking in a fixed rate before potential rate hikes take effect.
4. Businesses: If you’re a business owner reliant on credit, now may be the time to review your financing options and explore more favorable terms before borrowing becomes more expensive.

Looking Ahead

The potential for U.S. tariffs on Canadian imports is still uncertain, but the economic implications could be profound. For the real estate market, the combination of higher interest rates, rising prices, and reduced housing demand could lead to a slowdown in both home sales and construction projects. Key industries, particularly automotive and manufacturing, could also face challenges as a result of retaliatory tariffs.

By preparing for these economic shifts, Canadians can make informed decisions to protect their financial futures, whether through fixed-rate mortgages, diversification of investments, or prudent financial planning.

Reach out to Matt@huronmortgage.ca for updates as this situation evolves, and make sure to stay informed about the potential changes that could impact the economy and real estate market in the months ahead.