Weekly Digest

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March 3rd, 2025 – March 16th, 2025

Tariffs Impacts

Legendary investor Warren Buffett equated Trump’s tariffs to “an act of war.” That helped send investors running for government bonds.  As bond prices and yields move inversely, buying pressure leads to lower yields. Last week, Canada 5 year yield closed at almost a 3 year low.

This should put downward pressure on fixed rates moving forward. We have not seen big cuts to fixed rates (yet) as banks are in a holding pattern with all of the uncertainty in the market place.  

Markets have predictably reacted badly, since this raises the risk that Trump will also follow through on his threats to impose reciprocal country-specific tariffs soon, including a proposed 25% on imports from the EU.

If the US tariffs remain in place, Canada will undoubtedly fall into recession. The limited decline in our loonie suggests markets are still pricing in a quick turn around from the Trump administration. But even if the tariffs are soon lifted, their imposition represents a large change for the US-Canada trade relationship.

Against the backdrop of plunging immigration and poor productivity growth, the best-case scenario now is a sustained period of even weaker GDP growth than we previously expected.

Canada’s Response

The Canadian government had already announced retaliatory tariffs of 25% on $155 billion of U.S. goods, with the first phase covering $30 billion of final consumer items, including about $10 billion in food and beverage products.

The second phase of retaliatory tariffs will cover $125 billion of U.S. goods and will likely be made available in the coming days for a 21-day comment period prior to implementation.

This list will include products such as passenger vehicles, trucks and buses, steel and aluminum, certain fruits and vegetables, aerospace products, and more.

Taken together, tariffs on $155 billion of U.S. goods represents roughly 40% of Canada’s imports from the U.S. and may largely avoid intermediate inputs, which will mitigate some of the damage to Canadian manufacturers.

This will increase inflation as costs will soon increase.

Michigan, Minnesota and New York will face increased energy costs (1,500,000 homes projected) with new taxes from energy produced in Canada.

To Cut or To Hold?

All of this leaves the Bank (and forecasters) in a tricky situation. With Trump’s tariff threats weighing heavily on sentiment, the economy still needs more policy support than it would have done otherwise. 

Markets are now so nervous about tariffs that they’re betting on another BoC rate cut this year, making it 3 (up from 2).

In the U.S., markets are now pricing in three cuts as well, up from one not long ago.

Without a near-term truce in the tariff war, the following outcomes are plausible based on what we know today:

• Yields drop initially (we have seen this start to occur).
• Tariffs could take a few months to show up in inflation.
• Higher inflation prints could bottom out the 5-year yield, despite the slowing GDP.
• Home sales could fall with poor consumer sentiment, and mortgage volumes will follow.

Fixed rates have mainly held steady this week. That’s to be expected, as extreme volatility is unfavourable for pricing and hedging.

Recent strength of GDP and employment data all seam irrelevant now amid existential tariff threat.

Rate Outlook For Tomorrow

For the Bank of Canada meeting on Mar. 12:

• 25 bps cut: 84% chance
• No change: 16% chance

For the Federal Reserve meeting on Mar. 19:

• 25 bps cut: 7% chance
• No change: 93% chance

Looking Ahead

The current situation and path forward remains fluid and uncertain. The market hates uncertainty.

In recent days, members of the Trump administration have proposed the idea of “Fortress North America”, suggesting that tariffs on Canadian and Mexican exports to the U.S. may eventually be lifted.

Many prospective home buyers will be budgeting for increased market volatility moving forward, and avoid taking unnecessary risk.

February Home Sale

As uncertainty lingers, it’s not surprising sales were down by 27.4% compared to February 2024 and down from 5,971 sales in January. Alongside sales, listings fell 24.3% month over month to 12,066.

Election Forecast

With Mark Carney in as the Liberal leader, Kalshi odds show conservatives ahead, but it may no longer be a majority as previously projected.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.79%
• 3 year fixed, 30 yr amortization – 4.69%
• 2 year fixed, 30 yr amortization – 5.74%
• 5 year variable, 30 yr amortization – Prime – 0.50% = 4.70%
• 5 year fixed, 25 yr amortization – 4.69%
• 3 year fixed, 25 yr amortization – 4.59%
• 2 year fixed, 25 yr amortization – 5.64%
• 5 year variable, 25 yr amortization – Prime – 0.60% = 4.60%

INSURED

• 5 year fixed, up to 30 yr amortization – 4.34%
• 4 year fixed, up to 30 amortization – 4.44%
• 3 year fixed, up to 30 amortization – 4.24%
• 5 year variable, up to 30 amortization – Prime – .85% = 4.35%

Fast Facts

• 20% – The decrease in new home prices in the GTA since the 2022 peak.
• 31% – The percentage of first-time Canadian homebuyers who received financial help from their parents to purchase a property in 2024.
• $30,000,000 USD – Emergency loan recently given to Tropicana by its controlling stakeholder. With slumping sales, the juice company could be heading to bankruptcy.
• 80% – Share of potash used by U.S. farmers that comes from Saskatchewan. The mineral, used to fertilize crops, could become far more expensive for farmers in a trade war.
• $17.75. What the federal minimum wage will be raised to on April 1, up from $17.30. The federal minimum wage is adjusted annually based on the consumer price index.
• ~40%. Rise in residential power costs in Alberta between January 2020 and December 2024, well above the national increase of 14.2% over that span.
• $638 million. Financial losses caused by impersonation fraud in Canada last year. Impersonation scams have become one of the fastest-growing fraud risks in the country.
• 40 – Stores that Hudson’s Bay will close as part of its restructuring (roughly half of its locations). Part of the plan to keep the stores open hinges on rent relief from its landlords.