Form Here to There and Back Again

Predictions have always been a fools game, but a game none the less that I like to play. With that in mind, below are my predictions on what I think 2025 has in store. Some of these are housing related, but most are basic economic predictions – but since so much of Canada’s economy is wrapped up in housing, whatever happens in the economy has a direct impact on housing.

51st State

I do not believe Canada will become the 51st state in the new year, but I do believe that we will see movement towards an alliance between Canada and the US – at least economically speaking. My bet is that DJT offers green cards to a certain swath of the Canadian population to try and attract the wealthy, talented people over to the US. On top of this, I think there will be a lot of talk about making Canada and the US linked a lot more than they are now. Think some type of EU trade zone type of thing. Trump has always had a way of firing big shots at the outset ( tariffs ), and then using that to get what he wants later. Canada has a lot to offer the US and vice versa, so I think we will see a movement towards more of an economic union. Despite what X will have you believe, this could be a huge net benefit for Canada.

Housing

Housing will probably be in for a tough year in 2025. Although we are seeing some green shoots right now, there are too many headwinds to make 2025 a great year. Stubbornly high fixed interest rates, an almost dead stop of immigration, and over 3M Visa’s that will expire and supposedly will be leaving the country. If prediction number 1 comes true then you could also see an exodus of people to the South. If you take away almost 4M people that need to buy houses, you kill a lot of the demand part of the equation. Remember just 2 short years ago when everyone complained and bitched that we had a supply problem? Well, 2025 will most likely see a supply problem as well, it will just be an oversupply, rather than an undersupply. Look for the first 6 to 9 months of 2025 to really suck for housing, with a potential floor being put into place during the summer, leading to a small rebound into the end of the year. Houses are too expensive, so in order for people to be able to afford housing we either need house prices to come down, or everyone gets a big raise. Which do you think is more likely? Condo’s are already shitting the bed, and will continue to get worse in 2025. Who knew that no one wanted to live in a 400 square foot dog crate?

Tiff ‘ cut em to the bone ‘ Macklem

As we turn the page to a new year, it will be the same ol’ game for the BOC. Tiff and Co. will keep treating the overnight rate like a bonsai tree, and trimming, trimming, and trimming. Don’t look for a jumbo cut, or 50 bps or anything, but a slow and steady 25 bps here, and 25 bps there. So long as inflation remains subdued, unemployment remains high, and we have constant threats from chain rattling from South of the border, it will give the BOC all the runway they need to lay down some small, consistent rate cuts. I have my doubts that cutting the overnight rate will really do much, but that doesn’t mean that they won’t try. By almost every metric you look at financially, Canada is screwed. 25 bps of rate cut here and there won’t salvage the economy. By contrast we may only see 1 or 2 cuts from the US Federal Reserve. The Canadian and US economy in 2025 will be on different glide slopes.

Fixed up

Even though the overnight rate on both sides of the border will creep lower, I am not so sure that fixed rates will follow. As I type this the US bond market is opening for pre market trading, and it is continuing to creep higher into the year end. The US 10 year yield looks like it wants to finish the year at a new high, rather than lower. If the Canada 5 year follows suit, we could quite possibly end the year where we began, and it is more than a remote chance we see yields on government bonds finish the year higher than where they started. I imagine 2025 will see rates end about where they start the year – but that is not to say there won’t be a boat load of volatility between Jan 1 and Dec 31. I would prognosticate we see swings of 50 – 60 bps each way ( that means we could be 120 bps from the highs of the year to the lows of the year ) throughout the year. Just when everyone says rates are going higher for sure, like totally, like 1 million percent chance – they will come down, and when everyone ‘just knows’ that rates are going to drop, like they have to go down, I saw 3 realtors dancing on Tik Tok – lock in your pre apps, as they probably rise.

CAD

Well, nothing has been beat up more than the Canadian dollar this year. The reasons are plenty, the drop is significant, and the pain will probably continue for a few weeks into 2025. However, I think that we will see the lows put in in the CAD/USD trade between the end of Jan and the middle of March in that 6 week period. Currency markets are extremely forward looking, so I would look to see the trend reverse. Now that is not to say that more pain doesn’t lie ahead for the CAD in the first bit of January. The future of the CAD in January will completely rely on what happens with A ) tariffs on Jan 20, and B ) the complete clusterfuck that is the government. If we see tariffs removed or lessened, and we see a new government, the CAD will easily climb, and probably have a couple days of 1% gains. About the time things seem to be the worst is when the CAD will start to reflect future assumptions. If you have USD, look to sell into any strength in January.

Policy

If you thought 2024 was a bad year for housing policy, 2025 is going to make 2024 look like a practice game. We will have an election in Canada in 2025, the question is will it be in January, or October. I am also 100% confident in saying that the leader of the governing party will be replaced. As we lead into an election, politicians will make changes and promises and adjustments to housing policy. Best to keep your head on a swivel, and check government pages regularly – housing policy will be changed to buy votes – on both sides. Be very careful what you promise your clients. If someone asks if they qualify, better get some good language in a pre approval letter, because what qualifies under todays rules, probably won’t qualify in 12 hours under new rules. Is it a good time to buy an income property? Who really knows because we don’t even know what the taxes payable on a capital gain are. Do we need to stress test the file? Who knows for certain? Will we have a CRA linkage to verify income? Most probably, a definite maybe, 80% chance of a 100% possibility!!!

Volatility

2025 will be the year of volatility. The ups and downs of almost every market will probably cause a great deal of whiplash. Every shirt of the political winds will have major implications for financial markets. As the Fed and the BOC likely start to digress on monetary policy, it will be a bit of a bumpy adjustment for markets. Take it all in stride, and don’t let emotions get in the way. I expect swings in currency, rates, spreads, stocks, and pretty much all asset classes to see upper ranges of volatility for the first 9 months – at least of 2025.

AI

Well, 2024 certainly was the year for anything to do with AI. I think that the biggest winners of the 2024 AI stock race will become the biggest losers of 2025. AI is great and all, but until their is a business case to make money, AI looks to be out over its skies for the next 12 to 18 months. Stocks like NVDA and ASML and Taiwan Semi are probably going to have to cool their jets. I think all the rage in 2025 will be Quantum computing. Certainly not stock advice, but you might want to do your homework on some stocks with exposure to Quantum computing.

Stocks Markets in General

2024 was supposed to be a bad year for markets, and here we are putting in some pretty respectable numbers for the year. Just goes to show you that buying an index fund and dollar cost averaging is the way to get wealthy for most people. Most of the gains this year came from things like Tech, but I think 2025 will see a reversion back to industrial types of stocks. Oil and gas, manufacturing ( not autos ), and companies that actually make things – not sell concepts. Oil and gas rebounding would certainly be good for the TSX. However, I think it is likely that the stock markets overall have a bad year, and finish in the red. All of that hot AI and tech money will sell once January hits and they can delay capital gains for another year.

Crypto

Well, crypto certainly had a year, didn’t it? Holy shit!!! From Hawk Tuah girl ripping off everyone to Bitcoin’s meteoric rise, it was certainly a year not to be forgotten. It is going to sound like a bit of a cop out, but I think crypto makes some huge moves in 2025, I am just not sure of the direction. It is either going to rise into the stratosphere, or come crashing down. The move will be big, I just can’t peg the direction. If you own some crypto – might be a good time to sell 50% and wait to see where it goes. As John Pierpoint Morgan once said ” Never in history has a man gone broke taking a profit”. This prediction I hate the most, because if you sell half and it doubles in the market, I am an idiot, but if you sell half and it craters – it is also bad advice. Just be careful with crypto. As we have seen before it can go up and down dramatically and for no good reason either way.

Overall 2025 will be a year in which a lot of change will hit our industry. This is nothing new, but for a lot of brokers who are already tired, stressed, feeling exhausted, and not getting ahead, 2025 may be the final straw for them. At the end of the day good brokers will make it through, and bad brokers won’t. Brokers who provide solutions to their customers will prevail, while brokers who only worry about bonus comp will find it tough. 2025 will be the start of the renewal cliff, and with ever changing rules it is going to be tough. It is also going to be an interesting year because all the brokers who “just knew” rates would be lower in a couple years, back in 2022 and 2023, placed their clients into 2 and 3 year terms. Those terms will also be coming due in 2025, and a lot of brokers are gonna be eating crow to their clients. Sure, rates might be a smidge lower in 2025, but if the value of the house is down, one of the clients lost their job, and they have accumulated a crap load of debt in the last 2 years, it is going to be a tough job to even get them approved, let alone improve their situation. Maybe that 5 year fixed or variable wasn’t such a bad idea 2 or 3 year ago? Be prepared you are going to have a lot of clients coming to you from other brokers who promised clients lower rates on renewal, and are now pissed off. Craft your responses in advance so you know what to say to those people. Ensure that you help these clients with a plan. Maybe get to know a good bankruptcy trustee. When financial problems creep into a marriage – the marriage goes too. Get a couple of good marriage counsellors or divorce attorneys in your inner circle. Be the trusted resource for your client.

2025 by most accounts – economically at least will probably suck. But, near the end of the year I think we start to see better pastures, and heading into 2026 we should be planning for a full recovery. Better days will lie ahead, we just have to get through an up and down 2025 to get to the other side. Let’s check back in a year and see how good – or bad I was on what I thought 2025 would be. If anyone wants to take the other side of my predictions I would be more than happy to create a little wager with the winner receiving a donation to the charity of their choice.