In 1971, the “Nixon Shock” ended the Bretton Woods system of financial exchange rates and ushered in an era of floating currencies, fundamentally reshaping global financial markets.
Since then, U.S. Treasury policies — ranging from bond issuance to the fed funds rate to quantitative easing — have profoundly influenced global economic conditions, including Canada’s economy and real estate market.
Whether through rising mortgage rates that impact housing affordability, exchange rate fluctuations that drive up the cost of living, or trade policies that affect job market stability, these policies ripple across borders, altering demand and investment dynamics in Canada.
As 2025 begins with Prime Minister Justin Trudeau stepping down as leader of the federal Liberal party and Donald Trump preparing for his second inauguration, investors must navigate this era of political transitions with heightened attention to shifting fiscal and monetary policies.
During the Reagan administration, expansive U.S. fiscal policies, including tax cuts and increased defence spending, led to surging treasury issuance. This “Reaganomics” approach initially drove up U.S. interest rates to combat inflation.
In Canada, higher U.S. rates had spillover effects, forcing the Bank of Canada to follow suit, leading to higher mortgage rates and a real estate downturn. Homebuyers and developers in Canada faced severe affordability challenges due to the susceptibility of Canadian housing to U.S. debt-driven rate increases.
The 2008 global financial crisis prompted unprecedented coordination between the U.S. Treasury and the Federal Reserve (Fed), with massive fiscal stimulus and quantitative easing to stabilize markets. Canada’s real estate market felt the effects of this liquidity surge, as lower borrowing costs and foreign capital inflows drove up housing demand, particularly in urban centres like Toronto and Vancouver.
While the crisis originated in U.S. financial markets, its recovery measures underscored the interconnected nature of U.S. Treasury policy and the relative strength of Canadian banks.
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More recently, during the pandemic, the U.S. Treasury’s debt issuance to fund stimulus programs contributed to ultra-low yields globally. The Bank of Canada followed with its own easing measures, creating a clear path for Canadian housing: record-low mortgage rates, heightened demand for housing and surging prices.
If history is our guide, President-elect Trump’s changes to U.S. Treasury policy, including adjustments to debt management and fiscal priorities, could significantly affect Canada.
U.S. debt-financing policies, such as higher bond issuance, could weaken the U.S. dollar, making Canadian exports more expensive globally. Conversely, a stronger U.S. dollar could attract foreign investment into Canadian real estate, particularly in cities already favoured by international buyers like Toronto and Vancouver.
Tighter U.S. Treasury policies often drive global capital into safe-haven assets like U.S. treasuries, further reducing liquidity available for foreign investment in Canadian real estate. However, if the U.S. loosens fiscal policy and lowers rates, it may free up global capital, reigniting foreign interest in Canada’s housing market.
U.S. trade and fiscal policies could also affect regions of Canada differently.
For example, tighter U.S. trade restrictions or tariffs could hit export-heavy provinces like Ontario and Alberta, reducing income and housing demand. Conversely, policies favouring energy independence or infrastructure spending could boost demand for Canadian commodities, benefiting housing markets in resource-rich regions and favouring expansion in the western provinces.
Given such potential volatility, Canadian real estate investors should adopt a dynamic, forward-looking approach. Focus on resilient assets such as multi-family and industrial properties, which remain in demand even during policy-induced market swings. Monitor U.S. Treasury trends, particularly their effects on exchange rates and global liquidity, to anticipate shifts in investment flows. And look to invest in growth hubs and regions poised to benefit from changes in trade, migration and energy patterns.
U.S. Treasury policies are not just about the American economy – they are global economic levers.
For Canada, these policies represent both risks and opportunities, particularly in the real estate market.
History has demonstrated how deeply intertwined Canadian markets are with U.S. fiscal decisions. Canadian investors will need to understand and anticipate these shifts to successfully navigate the years ahead.
In an interconnected global economy, success will depend on recognizing the ripple effects of U.S. Treasury policies and seizing the opportunities they create.
— John Creswell is the executive managing director, global head of capital raising at Trez Capital.