NAFTA has dominated the news this week, as Foreign Affairs Minister Chrystia Freeland heads to Washington for what she has called “extremely intense” negotiations.
As the trade talks continue, some industry watchers have wondered how a tenser trading relationship with our southern neighbour might affect the Canadian housing market. The answer so far? Not much.
The Canadian lumber industry, which is closely connected to the country’s home building sector, has been able to recoup the cost of US tariffs amid high demand for new houses and renovation materials in the US.
The other way NAFTA could affect the Canadian housing market? Interest rate hikes. The Bank of Canada (BoC) hiked the overnight rate to 1.50 per cent in July, and is widely expected to do so again before the end of the year.
Higher interest rates lead to higher mortgage payments for Canadian homeowners, and could affect home sale activity. However, according to a recent note from Capital Economics senior Canada economist Stephen Brown, the uncertainty surrounding NAFTA negotiations could cause the Bank to hold off on another hike this year.
“Even if NAFTA negotiations are concluded successfully this week, the Bank of Canada is likely to wait until October before it raises interest rates,” writes Brown.
He notes that the BoC is wary of raising rates when it is unclear how the trade talks will shake out for Canada. He believes that the risk of a negative impact on the economy is too high for the Bank to safely hike the overnight rate in the near future.
“Even if a deal is reached soon, uncertainty will hang over the economy until it is actually passed into law which will not be until at least December,” he writes.