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Are Trump’s tariffs to blame for a recession in Canada?
The Canadian economy was slowing down before U.S. President Donald Trump launched his trade war against Canada with “Liberation Day” on April 2. Slowing immigration was a key factor unrelated to U.S. politics. Unemployment was rising and average income was falling. Tariffs accelerated the slowdown, increasing unemployment, hurting consumer confidence and wreaking havoc on businesses.
The impacts continue to ripple through the economy, with potential home buyers fearful of taking on mortgages in case they lose their jobs, and businesses pausing expansion plans while they grapple with dramatic changes in the cost of inventory and materials. Regardless of how long the tariffs last, the uncertainty they’ve created has caused consumers and businesses to rethink spending plans.
What happens to the housing market in a recession?
Although housing prices often fall in a recession, recessions don’t always go hand-in-hand with housing crashes. Some economists believe that factors like low inventories of homes, limited new supply from builders and strong demand will protect the housing market from a crash.
Housing prices in some Canadian markets have already declined. Royal LePage’s Q1 2025 national housing market report found aggregate home prices in the Greater Toronto Area fell 2.7% year-over-year to $1.1 million, while homes in Greater Vancouver declined 0.7% to $1.2 million. Over the same period, however, other markets, including Quebec City, Montreal, Edmonton and Halifax, saw increases. Data from Ratehub.ca saw mortgage affordability improve in April 2025 in seven major markets including Hamilton, Toronto and Vancouver. (Ratehub.ca and MoneySense.ca are both owned by Ratehub Inc.) There’s no guarantee these trends will continue, but so far, the recession is good news for prospective home buyers.
While the U.S. experienced a housing crash in 2008, the worst since the Great Depression, unique factors were at play. The subprime mortgage market had grown dramatically, with banks and other financial institutions lending money to high-risk borrowers. Lenders were willing to lend to almost anyone, popularizing terms like NINJA loans (“no income, no job or assets”) and “liar” loans, where no proof of income was required. Regulations banning this type of lending have since been implemented in the U.S. In Canada, the subprime industry remained small and stricter banking regulations prevented much of the risky behaviour that caused the U.S. crash.
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Best investments during a recession
A recession in Canada doesn’t necessarily mean a stock market crash. Economies and stock markets don’t move in sync. Russell Investments reports that, in the past, stock market returns have been positive in 16 U.S. recessions and negative in 15 recessions.
Even when a recession triggers a bear market—a market decline of 20% or more—staying invested is almost always the best strategy because, like recessions, bear markets are usually short-lived, lasting only 11 months on average.
Investors who sell during periods of market volatility often miss out on the upswing when markets recover. According to Franklin Templeton, if you’d invested $10,000 in the S&P 500 at the beginning of 2005, you’d have $71,750 at the end of 2024, an average annual return of 10.35%. But there were 5,033 trading days over those 20 years, and if you missed the 10 best days, you’d have only $32,871, an average annual return of 6.1%, If you’re anxious about the stock market, remember that from 1937 to 2024, returns for the S&P 500 were positive in 67 calendar years, or 76% of the time. Over the long term, stock markets tend to go up.
