With a trade war at hand, housing affordability seems like a lower-tier economic problem.
But the high cost of housing relative to income grinds away on aspiring young buyers, tariffs or no tariffs. A generation is starting to lose faith in Canada as a place to live and prosper.
The latest RBC Housing Affordability bulletin said that although trends are heading in a positive direction across the country, affording a home remains a stretch for average Canadians.
Promises from politicians to build more houses help, but the issue requires quicker action. Strange as it sounds, maybe a trade war can help.
Make no mistake: A trade war would damage the personal finances of many people through layoffs, loss of income, job uncertainty, higher food costs and short-term (at least) declines in the value of their investments. Stagnant or lower home prices are also a likely outcome, which is bad news for boomers who want to downsize – but potentially good news for young people who feel shut out of the housing market.
There are three main levers to housing affordability: borrowing costs, prices and incomes.
Anticipation of the economic impact of the United States and Canada applying tariffs on each other’s products has already put some downward pressure on mortgage rates.
If a trade war flares up, even lower rates are likely for both fixed and variable loans – a sort of Trump discount for people buying homes and renewing mortgages. The Bank of Canada has three more chances to adjust rates in the first half of 2025 and cuts can be expected at all or most if a tariff battle pushes the country toward recession.
Without a trade war, we could be at or very near the bottom for rates already. The job market in both December and January was stronger than expected, and economic growth for the final three months of 2024 was a positive surprise as well.
Home prices have been rising lately, though not enough to generate much excitement. The national average price in January rose 1.1 per cent above year-ago levels to $670,064, while Toronto and Vancouver were basically flat. A few cities had a good month: Winnipeg, for example, jumped 8.2 per cent to $363,200.
If home prices remain flat or decline, lower mortgage rates would improve affordability in a meaningful way.
This brings us to the final lever – income – which is a more positive story than you might think.
Hourly wages in January were up 3.5 per cent compared with last year, according to Statistics Canada. Wage growth is slowing and would probably stall in a trade war, but for now it’s coming in well ahead of our slightly below-2-per-cent inflation rate.
Of course, the constant risk to more accessible housing is that one or more of the three affordability levers start to work at cross purposes. The classic example: Mortgage rates fall, which drives an increase in demand and, in turn, prices.
A trade war gives us both lower mortgage rates and the potential for lower prices. Incomes may not grow much, but you can’t have everything.
Housing affordability has been as politically sidelined as climate change right now, and that’s a mistake. On housing, you can see anxiety and anger of young people flowing into a lack of faith in this country’s future.
A recent Ipsos poll found 77 per cent of 18- to 34-year-olds felt they would never vote for Canada to become part of the United States, compared with 74 per cent for people aged 35 to 54, and 87 per cent for people 55 and up.
But when presented with a scenario where Canadians would be offered full U.S. citizenship and a broad conversion of personal finance assets to U.S. dollars, 43 per cent of 18- to 34-year-olds said they’d vote yes to joining the U.S. One-third of people aged 35 to 54 agreed, and 17 per cent of those aged 55 and up.
More affordable housing, including rentals, would help restore some faith in Canada.
Yes, buying a first home amid or directly after a trade war requires underlying financial solidity, a state that eludes some young adults in today’s job market. But in any disruption to the economy, there will be an opportunity to make this country more productive and resilient. A downturn for housing could be a buying opportunity for people with a long-term view.
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