While the Bank of Canada lowering interest rates by an additional 25 basis points to 2.75 percent is seen as a good sign for the real estate market, economists warn the rate cut may not compensate for the uncertainty caused by U.S. tariffs.
“In a time of great economic uncertainty, people are being reluctant to make big purchases,” said Kevin Milligan, director of the Vancouver School of Economics at the University of British Columbia.
“It’s really turbulent out there.”
The United States placed 25 percent tariffs on imports from Canada and Mexico on March 4, and has also said it will bring on reciprocal tariffs on other countries starting on April 2. While some of the March 4 tariffs have now been paused until early April, U.S. President Donald Trump’s 25 percent tariffs on all steel and aluminum imports went into effect on March 12.
The U.S. stock market saw its worst days so far in 2025 after Trump declined to rule out a recession in a Fox Business interview on March 9, saying “there is a period of transition,” though two days later he rejected the notion that a recession could be on the horizon.
The Bank of Canada did not warn of a recession in announcing its most recent interest rate cut on March 12, but the central bank said the trade war will likely slow the pace of economic activity, see businesses scale back hiring and investing, and increase prices and inflation in Canada.
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The bank’s reduction of its benchmark interest rate from 3 percent to 2.75 percent is the seventh consecutive rate cut since June 2024.
According to the Royal Bank of Canada (RBC), this latest rate cut is welcome news for those looking to enter the housing market, since fixed and variable mortgage rates also fell further.
RBC also highlighted new rules that came into effect in December 2024, which made 30-year amortization periods available, thus lowering monthly mortgage payments. They also reduced the down payment requirement for insured mortgages up to $1.5 million, increased from $1 million.
Milligan said this current period of “almost unprecedented economic uncertainty” is comparable to the uncertainty in the markets that came after the terrorist attacks of Sept. 11, 2001, and the COVID-19 pandemic of 2020.
“In both of those instances, the real estate market just sort of shut down for a couple of months,” he said, adding that the markets eventually rebounded after a few months.
However, Milligan added that with U.S. tariffs potentially slowing down the economy and leading to job losses, some Canadians could be “a bit more locked into having a lot of money for purchasing a house,” which could lead to more activity.
David Amborski, director of the Centre for Urban Research and Land Development at Toronto Metropolitan University, who is also an economist, said it is taking longer than anticipated for lower interest rates to translate into more real estate activity.
Amborski said the most recent interest rate drop should “disperse some consumer confidence” in the real estate market. But he said the tariffs could increase caution among homebuilders, as construction materials will likely go up in price.
Rent, Immigration, Housing
According to the March 2025 Rent Report from Rentals.ca and Urbanation, average asking rents in Canada declined compared to a year ago for the fifth consecutive month in February, falling 4.8 percent to an average of $2,088. The year-over-year decrease relative to February 2024, when average rents were $2,193, was the steepest since April 2021 during the COVID-19 pandemic.
However, the report noted that average rents are still elevated compared to February 2022, when they were $1,809, and February 2021, when they were $1,689. Average asking rents in Canada still remain $302 per month higher than they were in February 2020, when they were $1,786.
Part of that decrease is due to Canada’s falling immigration levels, which have reduced demand for housing. While Canada loosened its immigration policies following the pandemic, which led to its population increasing from 38 million in July 2020 to an estimated 41.5 million in October 2024, Ottawa began lowering its target immigration levels in 2024.
The federal government put a two-year intake cap on the number of international student permit applications, and reduced the number of permanent residents to be admitted into Canada over the next three years.
Milligan said these policy changes, which will likely result in Canada’s population slightly shrinking in 2025, will be “good news for those in the buying side” of the real estate market as well.
Amborski also said lower interest rates would be to the advantage of those on the demand side of housing in Canada. However, the country is still facing supply problems that are keeping prices high.
A Canada Mortgage and Housing Corporation report from fall 2024 found that new home starts in the first half of 2024, when adjusted for increases in population, were around the historical average and “weren’t enough to meet growing demographic demand.”
That problem is not expected to go away any time soon, according to the Parliamentary Budget Officer. The PBO released a report in December 2024 which projected that an estimated 2.6 million households in Canada will be in “core housing need” by 2027 and that 2.4 million households are already in this situation, living in housing that is inadequate, unsuitable, or unaffordable but unable to find available alternatives in the local area.
Core housing need refers to a household whose home is in need of major repairs, does not have enough bedrooms for the household size or structure, or costs more than 30 percent of before-tax income.
