New Tariffs Effect on the Real Estate Market

Tariffs have the potential of affecting the price of wide variety of things, including homes.

As of now interest rates for home buyers are the lowest, we’ve seen them since October of 2024 with a 1% decrease. The average mortgage loan from lenders is around 6.5%, but if you’re planning on building a home, the upfront cost could be a lot more.

Rising tariffs, has triggered volatility in the stock market, So that means that investors are going to shift their money into bonds as a safer option. The increased demand for bonds drives down yields and that ultimately results in lower interest rates, which is what we’re seeing now. We have the lowest interest rates currently that we’ve seen since October of last year.

Tariffs against countries around the world will start to take place on April 5 and April 9. The good news for home buyers is the decrease in interest rates from lenders.

Home buyers and sellers in the U.S. are likely to feel the impact of the tariffs slapped on Wednesday. Economists expect tariffs to increase the cost of building and remodeling homes as the cost of imported building materials go up. At the same time, as consumer prices increase and economic growth slows, mortgage rates could fall — and that could help some home buyers.

The 30-year fixed-rate mortgage typically tracks the yield on the 10-year Treasury note. When financial markets sense chaos, they flock to the 10-year note for safety, because it is issued by the U.S. government and is considered virtually risk-free. When the 10-year yield falls, the 30-year mortgage rate falls in tandem. In September, when the 10-year yield went even lower, the 30-year mortgage rate dropped as well, triggering a surge of mortgage refinances.

Following announcement of the Tariff's the yield on the 10-year Treasury plunged to the lowest level since October. If these tariffs are kept in place rather than using them as a short-term bargaining tool, bond yields could see continued downward pressure, bringing mortgage rates down with them.

That would be a positive for housing, especially during a spring buying season already showing the highest purchase-application data in years.

At the same time, the housing market may also feel other, more negative impacts of the tariffs such as rising home prices and a hit to economic growth. 

Kathy Bostjancic, chief economist at Nationwide, said that the tariffs announced Wednesday were larger and more complex than what she expected.

The U.S. administration has put a minimum tariff of 10% on imported goods from all countries, and announced additional tariffs on goods from countries that the White House identified as “worst offenders.”

The real-estate platform Redfin noted that mortgage rates could be volatile in the coming days, with competing forces influencing their trajectory. 

“On the one hand, slower economic growth, higher recession odds and a selloff in the stock market would push bonds to rally, causing mortgage rates to fall,” Redfin wrote. “On the other hand, higher inflation for longer and the possibility of the Fed keeping the fed-funds rate higher would push mortgage rates higher.

“Whether rates fall or rise depends on whether this bout of inflation is temporary,” Redfin also foresees higher building costs for new homes, though the amount of that increase will depend on several factors now in flux.

Estimating the impact of the tariffs, there is expectation of economic growth, as measured by real gross domestic product (GDP) growth, to either climb at roughly the same pace as last year or not grow at all this year.

However, that there is a risk that it could turn negative. Significant retaliation by IS trading partners could tip GDP growth negative and result in a recession,

Danielle Hale, chief economist at Realtor.com, a real-estate platform, said that slower economic growth could mean that home buyers lose their purchasing power.

“While lower mortgage rates are likely to benefit home buyers and potentially unlock homeowners, slower economic growth would likely mean slower income growth,” Hale explained. Buyers might not have the same level of income to purchase homes should the economy falter, so lower mortgage rates may not necessarily help financially strapped home buyers.

“Tariffs will likely improve one of the three pillars of housing affordability — mortgage rates — but likely worsen trends in the other two — home prices and income growth,” Hale said.

Home builders expect tariffs to push up the cost of a new home. Builders are already seeing manufacturers increase the costs of building materials such as lumber, drywall and home appliances, which are mostly imported. 

In a March survey of builders, the National Association of Home Builders tariffs would increase the cost of building a new home by $9,200. 

For homebuyers, how much more a new home will cost depends on how much of the increased expenses builders pass on said Chen Zhao, Redfin’s economic research lead. But it’s very likely prices of new homes will increase meaningfully.

As to whether mortgage rates will trend lower in the coming months, experts’ opinions are divided on whether it’s a win for home buyers.

“The good news for the real-estate market is that mortgage rates are plummeting as well. The bad news for the real-estate market is that significant wealth is being lost in the equities markets and people will be loath to cash in right now,”

It’s still unclear how the tariffs will impact the job market, he said. But even then, “the trends set in motion on Wednesday are a net positive for housing,” “If this trajectory holds, 2025 could be the first year since 2021 where housing meaningfully outperforms expectations.

For Canadian homeowners and real estate investors, understanding these potential effects is crucial. Here’s what you need to be wary of in the coming months and years.

Rising Costs of Construction and Renovations

One of the most immediate concerns for the Canadian real estate market is the increased cost of construction materials. Many essential building materials—including lumber, steel, aluminum, and electrical components—are either sourced from or pass through the U.S. before reaching Canada. If the U.S. imposes new tariffs on these imports, Canadian developers and homebuilders could face rising costs, which may be passed down to buyers and renters.

For homeowners planning renovations, this could mean significantly higher prices for materials and labor. Investors in pre-construction condos and newly developed properties should be particularly cautious, as increased construction costs could lead to project delays, price hikes, or even cancellations.

Potential Impact on Housing Prices

Higher construction costs inevitably lead to higher home prices. In markets already experiencing affordability challenges, such as Toronto and Vancouver, this could further strain homebuyers looking to enter the market.

For investors, this may present both challenges and opportunities. On one hand, higher home prices could reduce demand, slowing down market activity. On the other hand, existing properties may see increased value as supply constraints push up prices. Those who already own real estate may benefit from this price appreciation, while prospective buyers could find it harder to afford homes.

Interest Rate Considerations

The broader economic impact of U.S. tariffs could also affect interest rates in Canada. If tariffs drive inflation higher in the U.S., the Federal Reserve may respond by increasing interest rates. The Bank of Canada typically follows suit, meaning borrowing costs for mortgages and real estate investments could rise.

Homeowners with variable-rate mortgages should be particularly cautious, as higher rates could lead to increased monthly payments. Investors who rely on leverage to finance properties should also be aware that borrowing costs may rise, potentially reducing profit margins on rental properties or pre-construction investments.

Investor Caution: Cross-Border Investments & Market Volatility

Canadian investors with U.S. real estate holdings must also navigate potential tax changes and market volatility. With Trump’s administration likely to focus on economic nationalism, policies may shift in ways that impact foreign real estate investors. Existing tax benefits, such as Section 1031 tax-deferred exchanges, could be altered, making cross-border investments less attractive.

Additionally, economic instability caused by new trade policies may lead to fluctuations in currency exchange rates, impacting Canadians investing in U.S. real estate. Investors should carefully assess their exposure to U.S. assets and consider diversifying their portfolios to mitigate risks.