Canada once prided itself on its stability. Post-GFC, the Canadian financial institutions were strong, and the economy remained resilient as the US struggled to recover from the Global Financial Crisis.
In 2000, the median household income in Canada was $47,301, which compares to $84,000 in 2024. This represents a modest annualized increase of 2.4%. Meanwhile, housing has gone from a median home price in 2000 of $163,951 to $705,600 or an annualized rate of 6.3%. This is why Canadians are angry.
In the US, the experience has been similar. In 2000, it was $42,148 and in 2023 it was $80,610 which is an annualized rate of 2.7% . In 2000, the median home price was $119,600 compared to $419,200 in 2024 which is an annualized rate of 5.3%. These results are similar, regardless of what period you choose, the main difference being that the absolute price level of $419,200 is materially more affordable than a median home price of $705,600 (Canada).
There has been a long-standing feeling in Canada that it is doing worse; some attribute this to productivity (which has its weaknesses as a measure). The reality is this: Canadians are frustrated by the disconnect between income and cost of living (primarily housing). This is more severe in Canada, and all the other complaints about Canada are secondary and usually a result of cherry-picked data. Canadians still live longer, have lower infant mortality, and have more college graduates, all while having similar levels of median household wealth (without the spectre of healthcare costs in old age).
There has been a lot of squabbling over GDP and GDP per capita in Canada, but this is misdirected. GDP is a good measure of market size, but GDP per capita is not a good measure of standard of living (see household income earlier). As an example, if you go to a hospital for a broken limb and receive an X-Ray and a cast, this will be registered as ~$4,000 of economic value that would be tracked in GDP. However, the same service in Canada would only be registered as ~$1,000 of economic value. The strangest part of this, is that the median salary of a radiologist in the US is $240,000 and in Canada it is $300,000. GDP and GDP per capita are useful but only within the correct context.
Canada’s direction, particularly post-COVID has been the lament of most Canadians, and in 2025, Canada could not be described as stable. Within this instability, there is certainly the opportunity for change. Here is what we do know:
1.2mm temporary residents will leave Canada in 2025, and roughly ~450,000 will be granted new permits. This is after the government totally lost control over its temporary worker and foreign student program.
- Canada will let in 90,000 fewer immigrants in 2025 (395,000 target).
- Mark Carney will likely be the new Liberal leader on March 9 and become Prime Minister shortly thereafter. An election will likely be called soon, and the Conservatives remain in the lead, but the Liberals are surging in polls, and the election will be close.
- President Trump is not done and will remain an unpredictable force for Canada’s economy for the duration of his Presidency.
- Housing starts in January were up 7% yoy at 15,930 versus 14,883 in 2024. Actual housing starts in Montreal and Vancouver are up sharply, while Toronto remains down due to less condo construction.
Other than talking points, Conservative Leader Poilievre nor Mark Carney have much in terms of substance that will change housing in Canada. We expect more of the same. Specifically, affordability will be strained, and immigrants will continue coming in, providing support to housing prices in urban centers.
Moving specifically to the issue of US Tariffs, the risk to housing in our view is most acute in areas where there is a heavy reliance on an industry impacted by tariffs, for example, Windsor or Alliston, Ontario given the exposure to the auto sector. The auto industry has said prices will rise by up to 25% once the current inventory clears. This will create a surge in used vehicle prices similar to what we saw during COVID. Demand is expected to be reduced by 10% in overall sales, and we would expect to see significant job losses in both Michigan and Ontario. This will put downward pressure on these markets. However, we don’t think you will see drastic changes to housing in 2025. If the tariffs persist beyond 2025, then markets like Windsor will experience a material economic contraction.
Outside of these auto-focused areas, we do not believe there will be a significant impact to housing. As an example, Oshawa has long been known as a car town, but its importance as an almost bedroom community of Toronto far outweighs the impact that the GM plant’s operations will have on Oshawa real estate prices. The Ford government, with its recently renewed mandate, has a lot of infrastructure spending planned, and proceeding with this investment could materially offset the harm caused to Ontario’s GDP by a decline in auto exports and job losses. Building out the ring of fire, the high-speed railway project, and expanding the highway system would all have a material benefit that could offset the tariff impact.
We expect new housing construction to slow due to tariffs on construction materials, and this supply disruption will likely help support the housing market in both the US and Canada. Both rely significantly on the other for construction, and this industry is already strained due to the lingering impacts of the pandemic and now various policy initiatives by the Trump administration.
There is a narrative that Canada needs the US more than the US needs Canada. This point is debatable, but certainly, in specific industries or locations, this is not the case. As an example, Canadians spent $21bn on tourism in the United States and Americans spent about the same in Canada. The reduction in American tourists in Canada is likely offset by Canadians changing travel plans to domestic tourism.
Similarly, Canadian energy has many potential destinations, as do all of Canada’s commodities other than the United States. A tilt towards Europe or Asia has long been in the cards for Canada. Aside from oil, which has been well-covered, Canada supplies approximately 1-2% of US electricity consumption, 40% of the aluminum, and almost all the potash that the US consumes. This may not seem like a lot, but in a constrained market, this is material and was previously expected to continue growing.
For 34 states, Canada is their largest export partner. In the housing sector alone, Canada imports $10bn a year of glass, appliances, hardware, and tile products. There is no ready market that the United States can substitute many of these products for. Standardization across the US and Canada for measurements, voltage/electricity, and a whole host of other areas makes it very easy for both American and Canadian companies to export to one another.
Rapprochement with the US is possible and desirable, but regardless of what decisions are made, the risk of instability will likely persist for the duration of Trump’s presidency and possibly longer.
For the average Canadian consumer, there must be an adjustment period to this ‘new normal’ of higher instability before Canadian consumers are ready to make large purchases or refinance their homes. The fear of job loss or significantly reduced income will deter spending in the short term. The reduced demand and the substitution from the various ‘buy Canada’ initiatives across Canada offset the inflationary pressures from a declining Canadian dollar and the price increases due to tariffs. This will likely result in the Bank of Canada leaning towards further rate cuts, rather than being concerned about inflation and keeping rates where they are.
In the short-term, (1Q and 2Q 2025) we expect slight home price declines (less than -2%) and reduced year-over-year activity across Canada’s urban centres. However, by 3Q 2025 we expect a rebound in the market with an established market sentiment that has adjusted to the nature of the current US Presidency. Part of this involves the substitution effect of changing purchasing baskets to adjust for tariffs and politics and part of this is clarity from having a federal government with a clear mandate.
Over the longer term, it is unclear if there will be any impacts on supply chains and the trade relationship between Canada and the US, or if this will be seen years from now as aggressive negotiating tactics that eventually resulted in cementing the status quo. From a housing perspective, we don’t think it matters, as we think the Canadian economy has sufficient tools and resilience to offset damage from a deteriorating US relationship with other trade relationships and markets. Canada is the 9th largest economy in the world, and the 37th largest country in terms of population. It is small relative to the US, but it is not small on a global scale.
The Canadian Dollar is the last piece of this story that must be highlighted. In USD terms, Canadian real estate has fallen substantially. CAD weakness increases the attractiveness of Canadian real estate for incoming immigrants and foreigners. Over the last year, CAD has weakened -5% and at times was down almost -8%. Tariffs, if instituted in a heavy-handed way (which appears to be the case right now), will weaken the Canadian dollar and arrest further rate movement by the Bank of Canada, despite what its rhetoric indicates. The Bank of Canada target inflation range of 1-3% could be crossed with a materially weaker dollar, based on a spike in the cost of imports, which also have reciprocal tariffs that Canada has imposed. This will limit how much rates can be cut, as this would further increase inflation. Canada as a commodity exporter (all commodities are priced in USD) benefits from a higher USD and a weaker CAD (given that all costs are in CAD). The relationship of the Canadian dollar with tariffs will materially soften the impact of tariffs and in some cases offset the impact entirely.
Dissolving the USMCA Trade Agreement is easier said than done and will have significant pushback in the US, where supply chains and billion-dollar business decisions were made based on this agreement engineered by President Trump in his last term. Canada has stated that it will seek arbitration and damages for breach of the USMCA, and this has a reasonably high chance of being successful. Furthermore, President Trump tends to rely on capital markets to diagnose the impact of his policies. There is little doubt that broad-based tariffs and trade restrictions will cause a market sell-off. Such a sell-off would create upward pressure on USD, which would further undermine the US’ ability to grow its manufacturing base which relies on exports.
The long and short of it is that we will hear a lot of exaggerated alarmism and panic every time a major news story comes out indicating some new front to negotiation or trade with the US, however, when all is said and done, the impact to Canadian housing should be muted in 2025 and likely beyond. The global appeal of Canadian real estate is based on quality education, clean air, diverse and tolerant cities, and stability. None of these are likely to change in the medium or long term, and it is even possible that Canada will become more attractive to those disenchanted with the United States.
Published by CFO, Rayan Rafay of Fraction Mortgages