As Trump’s Policies Reshape the U.S. Economy, What Will They Mean for Canadian Mortgage and Real Estate Markets?

The potential impact of Trump’s policies on the real estate market is a complex mix of both risks and opportunities, driven by a range of economic factors that could either stimulate growth or temper it.  Here are 7 key considerations for investors in preparation of the first 100 days of taking office.

1. Trump’s Policies and Inflationary Pressures  

Should the tariff hikes happen, it will become more expensive to produce goods that use foreign components. And if other countries hit back with retaliatory tariffs, it could also make it more expensive for manufacturers to export goods to foreign markets.  Trump's proposed economic policies, such as imposing tariffs, cutting taxes, and limiting immigration, are likely to collectively contribute to rising inflation. Historical trends show that such policies often lead to higher bond yields as markets anticipate tighter monetary policies to counteract inflation. As U.S. Treasury yields rise, the Federal Reserve may find it more difficult to lower interest rates as aggressively as it might have otherwise, limiting the Fed's ability to stimulate the economy.

2. Impact on Interest Rates in the U.S. and Canada  

A recent TD Economics report suggests that markets now expect the Federal Reserve to end its rate-cutting cycle at 3.5%, rather than the previously anticipated 3%. In Canada, the Bank of Canada (BoC) had initially projected a rate cut to 2% next year. However, in light of U.S. developments, the BoC is now likely to only reduce rates to 2.5%. The widening gap between Canadian and U.S. bond yields—at its widest in nearly three decades—adds pressure on the BoC to tread carefully with further rate cuts, to avoid exacerbating inflation.

3. The Impact of Rising Bond Yields on Mortgage Rates  

As U.S. Treasury yields rise, Canadian bond yields are likely to follow suit (see statistics below), pushing long-term mortgage rates higher. This creates a shrinking window for homeowners to lock in lower fixed-rate mortgages, particularly in the months leading up to the U.S. presidential inauguration in January. Variable-rate mortgages could offer some short-term relief, providing flexibility to switch to fixed rates once yields stabilize, but the overall trend points to higher borrowing costs.

4. Effects on Canadian Exports and Industrial Real Estate  

On the positive side, Trump's economic policies could stimulate U.S. economic growth, boosting cross-border trade. This is particularly beneficial for Canada's industrial real estate sectors, such as logistics, warehousing, and manufacturing. Additionally, a weaker Canadian dollar, driven by interest rate differentials between the U.S. and Canada, could make Canadian exports more attractive, boosting demand for Canadian goods. This could partially offset domestic inflationary pressures, providing some support to the Canadian economy.

5. Real Estate Investment: Risks and Opportunities  

Higher interest rates, driven by rising bond yields, can make real estate a less attractive investment relative to other asset classes. As borrowing costs increase, investors may require higher returns from real estate, which could lead to lower property valuations. This presents challenges for homeowners looking to refinance or sell in a market with declining prices. However, for cash-rich buyers, lower property values could present opportunities to acquire distressed or discounted assets, especially as higher interest rates reduce overall demand in the market.

6. The Delicate Balancing Act for Both Economies  

Trump’s policies create a delicate balancing act for both the U.S. Federal Reserve and the Bank of Canada. While the Fed may struggle to implement aggressive rate cuts, the BoC must monitor U.S. economic trends and interest rate movements to avoid exacerbating inflation in Canada. The interplay of these factors could have significant implications for mortgage trends, borrowing costs, and broader economic conditions on both sides of the border.

7. Conclusion: A Mixed Outlook for Canadian Real Estate  

In conclusion, Trump’s economic policies create a complex landscape for the Canadian real estate market, balancing both inflationary risks and potential opportunities. While higher borrowing costs, rising import tariffs, and escalating construction material prices may increase housing and commercial project costs—delaying some development investments—the weaker Canadian dollar and a stronger U.S. economy could benefit Canadian exporters, particularly in sectors like industrial metals and construction materials. With interest rates, bond yields, and economic conditions in flux, the Canadian real estate market faces a period of volatility. Homeowners and investors alike will need to remain agile and adaptable as these shifting dynamics unfold.

Are you debating over whether to dive into the real estate market now or wait for rates to drop further?  Working with an experienced advisor is critical to navigating challenging market conditions.  If you’re a commercial real estate investor, we can help with underwriting, opinions of value, acquisition strategies or passive investing. With over 30 years of experience in commercial real estate, we provide expertise across various transaction types and markets; which equates to less risk and more options for you and your company.  

At Paramount, we’re more than a Real Estate Brokerage; we’re solution providers dedicated to reducing occupancy costs and driving value for your business. We also partner with accredited investors seeking to grow and protect their wealth through commercial real estate. Visit www.paramountrealestate.ca to learn more and watch our video on Passive Investing. We look forward to working with you.