How Tariffs, Interest Rates, and Guelph’s Economy Could Shape the Real Estate Market
We’ve been keeping an eye on the latest threats of tariffs, and while it’s too early to say how everything will play out, there are a few key ways this could impact the real estate market—both broadly and here in Guelph.
Tariffs, Inflation & Interest Rates: What’s the Connection?
If these tariffs actually go into effect, they could raise the cost of goods, particularly materials like steel, aluminum, and lumber, which would impact everything from auto manufacturing to home construction. Higher costs generally mean higher inflation, and when inflation rises, central banks tend to keep interest rates elevated to slow things down. That’s the scenario where borrowing costs stay high, and affordability remains a challenge for buyers.
But there’s also another possible outcome. If tariffs slow the economy enough, we could see a downturn, leading central banks (including the Bank of Canada) to start aggressively cutting interest rates to prevent a recession. And if rates drop, real estate typically reacts quickly.
- For every 0.25% drop in interest rates, mortgage payments become more affordable. That directly increases purchasing power for buyers.
- If rates fall 1% from today’s levels, that could mean the difference between a negative and break-even cash flow for investors. And if they go lower, we could see stronger investor demand again. 1% is probably a bit of a stretch unless things got really bad
Rates are already expected to continue decreasing during 2025, but only a few cuts, and at a slower pace than 2024, but if tariffs create an economic slowdown, rate cuts could possibly happen faster and deeper than expected.
If Rates Drop, Home Prices Could Climb
We’ve seen this pattern before—when interest rates fall, more buyers enter the market, and competition pushes home prices higher. This happened in a big way during the pandemic, and while we’re not expecting another extreme surge, even a moderate drop in rates could bring a wave of new demand.
For buyers, this means there may be a short window where prices are relatively stable before things heat up. For investors, lower rates improve cash flow potential, making rental properties more attractive.
Guelph’s Unique Position: The Auto Industry Factor
Here’s where things get specific to Guelph. Our local economy has a strong manufacturing base, particularly in auto parts. If the U.S. government moves forward with tariffs on imported vehicles and parts, it could have ripple effects on the factories here that supply the U.S. market.
Potential impacts on real estate:
- Job uncertainty could temporarily slow demand. If major employers face increased costs or reduced demand, hiring could slow down, and some workers might hold off on home purchases.
- Rents could stabilize or soften in the short term. If fewer workers are relocating or upgrading housing, rental demand might see a brief slowdown—though long-term pressure remains strong.
- Long-term outlook remains positive. Even if the economy takes a hit, rate cuts would likely help balance things out, and Guelph’s strong population growth and housing shortage should keep upward pressure on prices over time.
Long-Term Perspective on Guelph Real Estate
While tariffs and economic shifts may have a short- to mid-term impact (1-4 years), real estate should always be viewed as a long-term investment—ideally on a 10-year horizon.
We’re not likely to see the kind of dramatic price swings we experienced between 2016 and 2022, so while prices may fluctuate in the short run, anyone buying today should plan for a longer hold period to see meaningful appreciation. Selling within 5 years? You’re likely looking at minimal net gain once you factor in real estate transaction costs, including commission, legal fees, and potential land transfer taxes.
That said, there are “cheat codes” to working around this timeline—opportunities that allow for shorter-term profit. This is where working with an experienced agent who understands real estate investing, development, and the local market dynamics can make all the difference. Whether it’s strategic property selection, value-add opportunities, or creative financing, the right approach can accelerate returns even in a market that’s moving more steadily.
What’s Next?
A lot depends on whether these tariffs are just campaign posturing or if they actually happen. If they do, we’ll likely see effects within 6-12 months, starting with manufacturing, then interest rates, and finally real estate pricing.
For now, I’d keep an eye on material costs, Fed and Bank of Canada commentary, and how developers are reacting. If tariffs cause a slowdown and rates drop, real estate could be in a strong position to appreciate again.
If you want to chat about how this could affect a specific deal or investment strategy, happy to go through it in more detail.
