Uncertain Times, Solid Foundations

In any normal month, the big stories in Ontario right now would focus on provincial and federal politics. The recent provincial election saw Premier Doug Ford secure a third consecutive majority—a rare feat in Canadian politics. The federal Liberal leadership race is nearing its end and will lead to a change of Prime Minister and a federal election. These are significant events that would normally dominate headlines and fuel speculation about policy, markets, and the broader economy.

But this was not a normal month.

The U.S. has effectively launched a trade war with Canada, enacting tariffs on imported products from our country. This is a new and developing economic event that will have immediate consequences. Its ripple effects will be felt across industries—including real estate. Certainly, these are early days and none of us have a crystal ball. However, let’s explore a few scenarios and what they could mean for Toronto’s housing market.

 

Potential Upsides:

A Flight to Hard Assets Like Real Estate
In times of uncertainty, investors tend to seek out stable, tangible assets. Historically, real estate has been one of those safe havens. If equity markets experience volatility due to the trade war, we may see capital shift from stocks into real estate. Toronto, with its long history of resilience, remains one of the most desirable real estate markets in North America, and this could drive demand higher.

Increased Domestic Investment

If cross-border trade becomes more difficult, Canadian businesses and investors may redirect their capital inward, focusing on domestic opportunities. Real estate, as one of the country’s largest and most stable asset classes, could benefit from this shift. Additionally, government policies aimed at stabilizing the economy could include measures to support housing, further strengthening the market.

 

Potential Downsides:

Rising Construction Costs & Inflationary Pressure
One of the ripple effects of U.S. tariffs on Canadian goods is the potential impact on construction costs. While Canada produces many of its own building materials, tariffs can disrupt supply chains, alter demand, and create price volatility. If Canadian producers scale back due to reduced U.S. exports, domestic supply could tighten, pushing prices higher. At the same time, a weaker Canadian dollar and retaliatory trade measures could increase costs for imported construction materials and equipment. If developers begin to slow construction projects due to rising costs, we could see an even tighter housing supply, fueling price growth and challenging affordability.

Higher Borrowing Costs & Economic Uncertainty
A trade war could negatively impact the value of the Canadian dollar, leading to higher import prices and renewed inflationary pressure. If inflation spikes, the Bank of Canada may have to delay or even reverse any planned interest rate cuts. While we had hoped for borrowing costs to ease in 2025, this shift in economic conditions could mean that mortgage rates stay higher for longer. This scenario would test affordability, particularly for first-time buyers and those looking to renew their mortgages in the near term.

 

What to Expect for Borrowing Costs

The Bank of Canada has been carefully navigating the path toward lower interest rates, but this new development complicates matters.

If inflation rises due to higher costs on imported goods, the Bank may be forced to delay rate cuts. On the other hand, if economic activity slows due to reduced exports and trade disruptions, rate cuts could still be on the table to stimulate growth.

For homebuyers, this means uncertainty in mortgage rates, but the long-term expectation is still for lower borrowing costs as the economy stabilizes. Those looking to enter the market should stay informed and work with professionals who can help navigate the evolving rate environment.

 

A Proven Store of Value

In times of economic turbulence, one asset has consistently demonstrated resilience: real estate.

Let’s look at the numbers. Over the past 25 years, dating back to January 2000, the Home Price Index of an average benchmark home in Toronto has increased by more than 360%. While there have been moments of volatility along the way, the long-term trend is undeniable.

More interestingly, let’s compare the behaviour of Toronto’s housing market to the stock market during some of the most challenging economic periods of the past 25 years:

• The Dot-Com Bubble (2000-2002): Between March 2000 and September 2002, the Nasdaq declined 77.9%, falling from 5,048 to 1,114. The S&P 500 dropped 49.1%, falling from 1,527 to 777. Over the same period, Toronto’s Home Price Index rose 15% (75.3 to 87.0).
• The 2008 Financial Crisis: Between October 2007 and March 2009, the S&P 500 dropped 57.7%, falling from 1,576 to 666. The Nasdaq declined 55.8%, dropping from 2,861 to 1,265. The Toronto home price index, in contrast, declined 7% (118.5 to 110.4) before rebounding 18% within two months (110.4 to 130.7).
• The COVID Market Shock (2020): From January to March 2020, the Nasdaq fell 18%, and the S&P 500 dropped 20%. Meanwhile, Toronto real estate values gained 5% (252.7 to 265.0) before entering one of the strongest price surges in its history.

These figures highlight a compelling truth: real estate isn’t just an investment…t’s an essential asset that holds value even in the most uncertain times. Unlike equities, real estate provides utility—it’s a place to live, to grow, to raise a family, and to create 100% made-in-Canada memories.

 

What Would Warren Buffett Do?

One of our sales representatives mentioned that Berkshire Hathaway had recently sold its exposure to the S&P 500, opting to turn its ETF holdings into cash. Now, while I would never claim to know what Warren Buffett is thinking, we do know his investment philosophy: buy quality assets when the market is fearful.

So, if Buffett were looking at the market for Toronto real estate today, I think he would see opportunity. Between market uncertainty, a shifting interest rate environment, and Toronto’s long-term track record of growth, those who take a long view may find themselves in an enviable position in the years to come.

Real estate has always been about more than just numbers on a chart. It’s about stability, security, and the knowledge that whatever happens in the global economy, a home remains a place of enduring value.

If history is any guide, now may be a time to look beyond the short-term headlines and focus on the bigger picture.

As always, I encourage you to speak with myself or a member of the sales team. We have been in business since 1957 and can expertly guide you through any real estate market environment.