The real estate market is not immune to geopolitical and economic policies, and President Trump’s latest trade war with Canada, Mexico, and China is set to send shockwaves across various industries, including housing and real estate investments.

The Trade War and Its Immediate Impact

President Trump has imposed tariffs of 25% on goods from Mexico and Canada, along with a 10% tariff on Canadian energy and Chinese goods. While the justification for these actions revolves around immigration and drug trafficking concerns, the broader economic consequences could be severe.

The Wall Street Journal has called this the "dumbest trade war in history," warning of severe disruptions to trade and manufacturing. As the global supply chain takes a hit, everything from auto parts to construction materials will see price hikes, leading to significant inflationary pressures.

How This Affects the Real Estate Market

1. Rising Construction Costs and Housing Affordability

One of the most immediate impacts of the trade war is the rise in construction costs. Canada is the number one supplier of steel and aluminum to the U.S., and these materials are critical to building homes, commercial properties, and infrastructure. With tariffs in place, the cost of construction materials is expected to surge, which means:

Higher Home Prices: New home builds may become more expensive, making it harder for first-time buyers to afford properties.

Reduced Housing Supply: Developers may pause or scale back projects due to increased costs, leading to a shortage of new homes.

Delays in Renovations and Repairs: Homeowners looking to renovate may face higher prices for materials like aluminum siding, steel beams, and fixtures, delaying or canceling planned upgrades.

2. Mortgage Rates and the Bank of Canada’s Response

The economic slowdown caused by these tariffs is likely to push the Canadian economy into a recession. To counteract the downturn, the Bank of Canada is expected to cut interest rates aggressively.

Lower Mortgage Rates: The Canadian 5-year yield has already dropped to 2.51%, its lowest level in nearly three years, signalling lower fixed mortgage rates. This could provide relief to home buyers who are struggling with affordability.

Increased Refinancing Activity: Homeowners with existing mortgages might take advantage of lower rates to refinance their loans and reduce their monthly payments.

Challenges for Investors: While lower interest rates are favourable, an economic downturn could lead to lower rental demand, potential job losses, and uncertainty in the real estate investment market.

3. The Impact on Cross-Border Real Estate Investors

For investors who buy properties in the U.S. or Canada, the trade war introduces new risks and challenges:

Currency Fluctuations: The Canadian dollar has already taken a hit, making U.S. property investments more expensive for Canadian investors.

Uncertainty in Rental Markets: A slowdown in trade could impact employment, leading to lower rental demand and increased vacancies in both residential and commercial properties.

Cross-Border Business Disruptions: Investors who rely on U.S.-Canada trade, such as those in logistics, warehousing, and industrial real estate, may experience reduced profitability due to supply chain disruptions.

4. Consumer Confidence and Market Stability

The stock market reaction to Trump’s tariff announcement was swift, with global sell-offs and declining oil prices. Economic uncertainty can cause potential home buyers and sellers to hesitate, leading to a slowdown in market activity.

Buyers May Wait and See: Home buyers might delay purchases in anticipation of lower prices or job uncertainty.

Sellers Face Longer Listing Times: With fewer buyers in the market, homes may take longer to sell, forcing price reductions.

Investor Sentiment Shifts: Real estate investors might hold off on acquisitions due to market unpredictability, especially in commercial real estate sectors reliant on trade and manufacturing.

Final Thoughts: What Should Buyers, Sellers, and Investors Do?

Given the uncertainty surrounding the trade war, here are key takeaways for different stakeholders in the real estate market:

Home Buyers: If you're considering purchasing a home, take advantage of lower interest rates, but be mindful of potential economic instability that could impact job security.

Home Sellers: Price your home competitively, as the market may experience slowdowns. Be prepared for longer listing times and negotiations.

Real Estate Investors: Diversify your portfolio to mitigate risks from potential economic downturns. Look into markets less affected by trade tensions and consider sectors like rental housing, which may benefit from lower mortgage rates.

As we move forward, staying informed about economic policies and their impact on real estate will be crucial. Whether you're a buyer, seller, or investor, strategic decision-making will be key to navigating the uncertain landscape of the housing market in the wake of this trade war.

If you’re serious about buying, take action now: get pre-approved, research your options, and work with an experienced agent who understands the market.