The Canadian Housing Market: How U.S. Policies Could Reshape the Real Estate Landscape Amid the Mortgage Renewal Wave

A Financial Post article from November 8th outlines Trump’s proposal to sweep 10% to 20% tariffs on all Canadian imports to the United States, which would be passed along to American consumers, creating widespread economic repercussions. Canadian trade lawyers and economists are bracing for tariff impacts, as highlighted in various reports, including a November 12th Globe and Mail article and a November 10th CBC video.

Experts warn that blanket tariffs could trigger significant economic consequences. An October 24th TD Economics report stated that “Real GDP would fall 2.4 ppts over 2 years.” However, is this scenario inevitable? Could it be more a case of brinkmanship than a definitive course of action? For instance, in a November 11th Financial Post article, CIBC chief economist Avery Shenfeld described Trump’s tariff threats as “maximalist” and speculated they might be “de-escalated” during negotiations. However, there is still room for doubt. In his November 29th CIBC Economic Report, Shenfeld noted “We’re still facing troubling political uncertainties, but we can start to read the early signals from GOP Congressional leaders and Trump appointees on where fiscal and tariff policy is headed.”

While Republicans hold a majority in both the U.S. Senate and House, there is debate concerning whether or not Trump can unilaterally impose sweeping tariffs. However, Trump could use reconciliation to push tax and spending bills through Congress with a majority in the Senate.

How would tariffs affect the Canadian economy and housing market? According to a November 11th Financial Post article, Trump’s policies may not only involve tariffs but could also induce higher inflation, rising interest rates, and increased mortgage costs. A November 6th Globe and Mail article states that Canada’s economy faces an “unpredictable future,” citing that Trump is “promising to run the U.S. economy hot, with deeper corporate tax cuts and a push for deregulation,” measures that paradoxically often support economic growth. TD Economics expressed cautious optimism, stating that “cooler minds will probably prevail,” potentially boosting Canadian economic growth, due to the U.S. being Canada’s largest trading partner. If the U.S economy “runs hot,” logic suggests that Canada’s economy could benefit.

However, concern exists over inflation and rising interest rates as potential by-products of future U.S. economic policies. According to a November 11th Financial Times article, 10-year Treasury bond yields are rising, with markets anticipating that Trump’s proposed tax cuts and tariffs could increase inflationary pressures. Investors are growing worried about bond returns; rising inflation prompts bondholders to demand higher real yields. As a result, U.S. Treasury rates are climbing, which translates to higher fixed mortgage rates—a trend that Robert McLister highlighted in a November 8th Financial Times article, forecasting it to persist well into 2025.

The concern that deficit spending and unfunded tax cuts could exacerbate inflationary pressures is not mere hyperbole. Significant uncertainty remains, especially in the real estate market. With this in mind, what insights do recent interviews with Canadian experts provide about the future of Canadian housing values?

In a November 22nd BNN Bloomberg video, Phil Soper, president and CEO of Royal LePage, suggested that Canada could have a banner year in 2025. However, in a November 11th Toronto Star article, Soper predicted a market boom in the coming year. The reality may be quite different.

For example, in a December 2021 article, Royal LePage forecasted a strong real estate market for 2022, with home prices projected to rise by 10.5%. Bloomberg revisited the topic with Soper, reflecting on the market’s trajectory. While house prices peaked in early 2022, Soper acknowledged that as interest rates rose following the pandemic, home prices either “treaded water” or “gave back a little bit” in Toronto and Vancouver. 

Data underscores this downturn. Canada’s peak benchmark price in February 2022 was $816,720, which has since declined to $718,200—a $98,520 loss. Toronto has seen an even sharper drop, with its peak benchmark price of $1,376,000 in March 2022 falling to $1,060,300—a $315,700 decline. These figures highlight the challenges the Canadian economy faces in fostering a robust housing market. With home values falling, many experts caution that tariffs and other trade-restricting policies could further hinder the real estate market’s recovery.

Does the data suggest that Canadian home values will continue to drop, buyers will remain on the sidelines, and current homeowners will struggle to pay their renewing mortgages if future U.S. policies lead to a substantial rise in inflation and interest rates? 

A November 29th Financial Post article, citing a November 20th TD Economics report, indicates that Canada has stepped back from the “mortgage renewal cliff” due to “looser-than-expected financial conditions.” Lower interest rates, combined with some borrowers prepaying their mortgages and converting to fixed-rate options, are setting the stage for aggregate payments to decline by 1.2% in 2025. TD also highlighted that the mortgage renewal shock may be milder than expected due to a recent 30% increase in wages and home values.

Despite this optimism, challenges persist. A November 15th CMP article cites CMHC warnings about increasing mortgage arrears, while a December 4th Canadian Mortgage Trends article reports that, according to RBC, borrowers could face an additional $500 in monthly mortgage payments by 2025. Scotia Bank has already observed a rise in late mortgage payments “but remains optimistic about renewals”.

The November TD Economics report offers a more hopeful outlook, asserting that Canadians are no longer “teetering on the edge” ahead of the upcoming mortgage renewal wave. According to TD, the situation has improved significantly since its report last year, which described the wave as “mission possible.”  Declining interest rates and heightened leader competition, driven by the slowdown in home sales and other mortgage-related business, have caused variable rates to drop by 42 basis points. As a result, borrowers with variable-rate mortgages have increasingly shifted to fixed-rate options, with 14% of the $520 billion in variable-rate mortgages now converted. This trend suggests that borrowers renewing mortgages in the near future may benefit from improved affordability.

However, one critical factor remains uncertain: will borrowing costs be lower at the time of renewal? TD’s report does not address the influence of the U.S. Treasury markets on Canadian fixed mortgage rates, which are dictated by bond yields rather than the Bank of Canada (BoC). These bond yields will ultimately affect the Canadian mortgage renewal wave in 2025-2026. 

So, the next question arises: with Trump and the new administration set to implement a new fiscal policy—described by many sources as potentially inflationary—where will Treasury bond yields, which affect fixed-mortgage rates, be headed?

As Canada faces a critical period of mortgage renewals against the backdrop of potential U.S. policy disruptions, the housing market is at a crossroads. Domestic economic adjustments and external pressures—most notably from the potential fiscal policies of a re-elected Trump administration—underscore the uncertainty of the years ahead. Rising bond yields, tariff threats, and inflationary fiscal measures could strain stability, affordability, and economic growth for 2025 and beyond. 

In our next article, HAVEN will take a further look at the numbers: how Canada’s housing market is reacting to prevailing economic factors influencing real estate.