The war in Iran is pushing oil prices higher and reinforcing the \u201cstalemate\u201d in Canada\u2019s housing market, experts say. Uncertainty around the conflict\u2019s impact and duration, alongside a wide range of potential outcomes for the Canada\u2013U.S.\u2013Mexico Agreement (CUSMA) review, has further clouded the Bank of Canada\u2019s (BoC) path forward on interest rates.<\/p>\n
Any combination of a protracted Middle East conflict and higher tariffs would likely further slow real estate activity. But even a quick resolution of the Iran war and a positive CUSMA review outcome wouldn\u2019t bring about a dramatic rebound, says Randall Bartlett, Desjardins Group\u2019s deputy chief economist.<\/p>\n
\u201dWe’re in a situation now where it’s a bit of a stalemate,\u201d he told Yahoo Finance Canada in an interview. \u201cCertainly, it’s going to be a slow grind higher for the next couple of years.\u201d<\/p>\n
Economists widely expect the BoC to keep its policy rate at 2.25 per cent tomorrow. Beyond that, uncertainty abounds. Odds of a cut later this year faded against the backdrop of the Iran conflict, and then last week\u2019s weak job market data<\/a> prompted some economists to push back on the idea of a rate hike to counter inflation pressures.<\/p>\n A boost for the housing market via lower borrowing costs becomes less likely the longer gas prices stay elevated, says Royal LePage CEO Phil Soper. \u201cI believe the economic concern that might lead to a rate cut is going to be pushed to the side and the Bank of Canada is going to be more worried about higher energy prices and how those filter through the economy and show up in other ways.\u201d<\/p>\n The Iran conflict has added volatility to energy prices, with crude costs seesawing but considerably higher than earlier this year. Gas prices have already begun to rise<\/a>, and the broader inflationary effects of an oil shock are a new variable the Bank’s governors must weigh alongside the outcome of the CUSMA review.<\/p>\n A recent Desjardins report outlines three potential outcomes for that review, with the baseline keeping the agreement intact and the effective tariff rate on Canadian exports holding around 2.7 per cent \u2014 leading to a \u201cfragile recovery.\u201d<\/p>\n The alternative paths are more dire and likely to slow the housing market even further \u2014 with the effective tariff rate rising to nearly 10 per cent if CUSMA becomes subject to annual reviews, and 25 per cent if the agreement is scrapped altogether. That most dire scenario is likely to trigger a recession in 2027.<\/p>\n \u201cIn either of those downside scenarios \u2026 you end up in a situation where there’s weaker economic activity, rising unemployment rate, and ultimately that’s going to be a drag on the housing market in that you’ll have fewer buyers entering the market,\u201d Bartlett said.<\/p>\n Story Continues <\/p>\n