Fri Yay

Tomorrow is probably the most important day – central bank wise at least for the remainder of 2025. Tomorrow morning we will get some employment reports out of Canada and the US that will likely help determine where overnight rates go at the next meeting for the BOC and The Fed. I bet we see a 25 b reduction at the BOC meeting next week. 50 bps I believe is off the table, unless the data tomorrow is beyond abysmal.

Bond markets have been fairly muted the last couple of weeks ( I figured they would be a lot more volatile – I got that one wrong ), so we will see if tomorrows employment reports light a fire under the volatility volcano, or if it bonds yields continue their nice meandering into year end.

The Canadian 5 year yield is sitting pretty comfortably under the 3.00% ceiling, and looks content to drift lower into the year end, but as we all know, a sudden spike or drop is always in the cards. One government report that goes the wrong way, or one tweet by DJT can move a bond yield in either direction quicker than the human eye can track it. After the year 2024 has been, lets hope that we can see some nice meandering on bond yields into Dec 31.

I really feel strongly that 2025 is going to be a make or break year in Canada, and I think the bond market is sitting and trying to figure out all the data that the next 12 months will bring. Generally situations get worse before, or in order to get better, but when there is an election on the line, politicians will use any and all things necessary to win an election, so we can’t rule out a temporary, tax relief induced rally on any and all assets – housing included.

I truly believe that 2025 will be the year that will define a lot of careers for people in our industry. The challenges that 2024 presented will be amplified through 2025, and it will be a make or break year for many. Sadly, or not so sadly, many people will fall out of the business next year, and that will simply leave more deals for those that remain. 2025 will bring its own set of unique challenges for us, lets explore:

Bond yields will be certain to bounce around and be more volatile than normal ( yes, yes, I know I just admitted I got that call wrong, but 2 weeks does not make a year, and I think volatility will still be higher than normal in 2025 ). I completely expect that the ” rates must go lower ” crowd will find them selves on the wrong side of the boat in 2025. Rates could go lower, and rates might go lower, and maybe you think rates SHOULD be lower, but that doesn’t mean rates HAVE to be lower. If I had to peg it, and barring a black swan financial collapse, it would not surprise me one bit to see rates pretty much at the end of 2025 where we sit today. If rates do move, I really think they end higher at the end of 2025 than at the end of 2024.

Trump Trumps All. As we all get ready to go through a Trump Administration, we must look backwards and have our play book ready. What Trump does, or says, or thinks, or tweets is often more important than actual economic data, and can move any and all markets in a heartbeat. You could see a blow out number that should move a market one way, and then Trump will give a press conference and a market will move the exact opposite way it should have. Literally Trump trumps everything. Remember that markets discount future expectations – what do I mean by this? Stock markets, bond markets, currencies – really any market is always calculating future expectations. So, even though an inflation number comes in under the expectation, if Trump announces a policy that markets THINK will be inflationary in the coming months, it doesn’t matter that last months number was low. All markets are forward and future looking.

Housing has a long road to recovery. While we have seen a lot of housing declines, the worst is not over, but I feel that 2025 is where we will turn the corner. Probably in the latter half of the year. I really think the first 6 to 9 months of 2025 will continue to keep Canadian housing in the intensive care unit. As projects fail, building slows down, and condo projects collapse every day, Canadian housing is still on critical watch, and will be so for a while. Those of you that think housing to the moon, rocket ship, buy now while you still can are going to have a lot of crow to eat. Housing is slowly starting to show signs of bottoming out, but we are in the pre game warm up phase of that – not even in the 1st inning yet. When the newspaper headlines are absolutely the worst, that will tell me housing can begin to recover. When every story is about another condo project going bankrupt, when news reporters are covering story after story about a family losing their home to the bank – then, and only then do I think housing is going to bounce.

Politicians will change the rules more times than you can count, but at least the rules changes should be friendly to brokers. As we draw closer and closer to the election, look for things like stress test relief, longer ams, lower down payments, and potentially even higher ratios to be allowed. Of course it seems far fetched now, but as we draw closer to October 2025, and the all important election, politicians will tinker away and put pressure of regulators to make housing work again. Never underestimate the desperation of a politician to win and election.

Inflation. If I was a betting man, I would prognosticate that we have not seen the last of higher inflation. I think 2025 will show a heat up of inflation numbers that will keep Tiff and Co. in a very uncomfortable position – especially with politicians wanting lower rates heading into an election. Inflation was calmed down, but maybe it was just re charging? Number in Canada, the US, the UK and parts of Asia are going the wrong way. Put some Trump tariffs, and a deglobalization of production, or onshoring, and we could see inflation finds its mojo again.

But of course, all that is still 3 weeks away. For now we have to get through some employment reports, an inflation report, a central bank meeting in Canada and the US and some GDP numbers. Those things will set up the year end, and see where we start 2025.