The Impact of Lower Interest Rates and Tariff Turmoil on Canada’s Housing Market
While the Bank of Canada lowering interest rates by an additional 25 basis points to 2.75 percent is seen as a good sign for the real estate market, economists warn the rate cut may not compensate for the uncertainty caused by U.S. tariffs.
Kevin Milligan, director of the Vancouver School of Economics at the University of British Columbia.
“It’s really turbulent out there.”
March 4, and has also said it will bring on reciprocal tariffs on other countries starting on April 2. While some of the March 4 tariffs have now been paused until
early April, U.S. President Donald Trump’s 25 percent tariffs on all steel and aluminum imports
went into effect on March 12.
worst days so far in 2025 after Trump declined to rule out a
recession in a Fox Business
interview on March 9, saying “there is a period of transition,” though two days later he
rejected the notion that a recession could be on the horizon.
interest rate cut on March 12, but the central bank said the trade war will
likely slow the pace of economic activity, see businesses scale back hiring and investing, and increase prices and inflation in Canada.
Royal Bank of Canada (RBC), this latest rate cut is welcome news for those looking to enter the housing market, since fixed and variable mortgage rates also fell further.
new rules that came into effect in December 2024, making 30-year amortization periods available, and reducing the down payment requirement for insured mortgages up to $1.5 million, increased from $1 million.
Milligan said this current period of “almost unprecedented economic uncertainty” is comparable to the uncertainty in the markets that came after the terrorist attacks of Sept. 11, 2001, and the COVID-19 pandemic of 2020.
“In both of those instances, the real estate market just sort of shut down for a couple of months,” he said, adding that the markets eventually rebounded after a few months.
However, Milligan added that with U.S. tariffs potentially slowing down the economy and leading to job losses, some Canadians could be “a bit more locked into having a lot of money for purchasing a house,” which could lead to more activity.
Rent, Immigration, Housing
According to the March 2025
Rent Report from Rentals.ca and Urbanation, average asking rents in Canada declined compared to a year ago for the fifth consecutive month in February, falling 4.8 percent to an average of $2,088. The year-over-year decrease relative to February 2024, when average rents were $2,193, was the steepest since April 2021 during the COVID-19 pandemic.
However, the report noted that average rents are still elevated compared to February 2022, when they were $1,809, and February 2021, when they were $1,689. Average asking rents in Canada still remain $302 per month higher than they were in February 2020, when they were $1,786.
reduced the number of permanent residents to be admitted into Canada over the next three years.
Milligan said these policy changes, which will likely result in Canada’s population slightly shrinking in 2025, will be “good news for those in the buying side” of the real estate market as well.
Amborski also said lower interest rates would be to the advantage of those on the demand side of housing in Canada. However, the country is still facing supply problems that are keeping prices high.
fall 2024 found that new home starts in the first half of 2024, when adjusted for increases in population, were around the historical average and “weren’t enough to meet growing demographic demand.”
report in December 2024 which projected that an estimated 2.6 million households in Canada will be in “core housing need” by 2027 and that 2.4 million households are already in this situation, living in housing that is inadequate, unsuitable, or unaffordable but unable to find available alternatives in the local area.
