A commercial truck heads toward a port of entry at the Canada-U.S. border from Surrey, B.C., on Nov. 26.Jennifer Gauthier/Reuters
A week before the federal government addressed high living costs with a two-month GST holiday and $250 cheques, the latest numbers on the housing market arrived.
They came in hot. Sales in October were 30 per cent above the same month last year, while the national average sale price jumped 6 per cent. Other economic reflections of the moment include robust new vehicle sales and resilient retail sales. While some households struggle to pay for groceries, sales at food and beverage retailers perked up nicely in the latest report.
Canada’s economy is a study in contradictions today, but the Donald Trump factor unites us all. The U.S. president-elect doesn’t take office until Jan. 20, but he already haunts our personal finances.
This week’s threat from Mr. Trump to introduce 25-per-cent tariffs on all products from Canada and Mexico instantly knocked the already weak Canadian dollar down a peg. His stated economic policies have already resulted in higher interest rates in the bond market, which directly influences fixed mortgage rates.
The financial news is not all bad – stocks have done well since the U.S. election on Nov. 5, and cryptocurrency is thriving. But Mr. Trump’s return to the White House on Jan. 20 will disrupt things in both overt and subtle ways.
He’ll undoubtedly pressure Canada to increase defence spending at a time when the federal government is already running a deficit that is supposed to stay below $40-billion. There was speculation about a higher deficit even before the government said it would cost $6.3-billion to provide a two-month GST holiday on a wide variety of products and those cheques in April for people who worked in 2023 and had net income of up to $150,000.
The federal Liberals made these moves to address the anger and anxiety many households feel about the cumulative effect of inflation and high interest rates on their finances. Previous government moves to address affordability include cheaper child care, income-tested dental care, the elimination of interest on federal student loans and increases to Old Age Security.
Expect the scope for more of these measures to be severely limited if spending on defence, border security and other priorities becomes a priority in managing U.S. relations. In fact, upcoming federal budgets may be as much about cuts as new spending.
Some in the business world see Mr. Trump’s policies as being good for U.S. economic growth, which would likely have a spillover effect in Canada. But there’s an uncertainty factor in a Trump presidency that threatens to undermine our financial security.
Mr. Trump announced the 25-per-per cent tariff policy on social media late on Monday. Near instantly, the value of the Canadian dollar in U.S. currency fell hard. Our dollar clawed back some, but it still traded at levels not seen since the full-on pandemic days of 2020.
An aside to snowbirds and people with plans to travel to the United States this winter and beyond: consider buying U.S. dollars now and any time you see our buck having a good day. There doesn’t seem to be much chance in the near term of a rebound for the Canadian dollar.
The housing market’s recent strength has been fed in large part by falling mortgage rates, which are well down from peak levels but still way above where they were the last time housing popped. If anything, mortgage rates are heading higher in the near term.
A couple of lenders increased fixed rates by 0.1 of a percentage point last week, which offers a lesson to people buying homes and renewing mortgages. Get a rate hold right now if you think you want a fixed-rate mortgage. Variable-rate mortgages are a bit more predictable at the moment because they follow the trend set by the Bank of Canada’s benchmark lending rate.
The benchmark rate has room to fall in the months ahead as result of modest inflation and slow economic growth. If a Trump government does actually introduce tariffs on products from Canada, we could see worsening economic conditions and even more Bank of Canada rate cuts.
A warming housing market, crowded restaurants and busy automobile dealers tell a positive story about the economic and the state of personal finance as we look ahead to 2025. Remember the Trump factor, though. The future is business as (un)usual.
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