Listening

Growing up it was common for the old timers in our small town to tell the youth of the day ” God gave you 2 ears and one mouth, so you should listen twice as much as you talk “. From time to time with my own kids, I would quite often say “you need to put your listening ears on” – something you might have told your own children over the years.

While there is no shortage of talking in todays’ world, and social media is constantly ramming opinions down our throat, it can be hard to sit back and actually listen to what is being said.

Over the last couple of weeks, there is a growing trend that we really need to be aware of, and I think it is time to start really listening to a lot of people – people we may not agree with or share the same views as, but people that may actually know what is going on. In the last couple of weeks we have seen:

RBC forecast for no more overnight rate drops from the BOC

Inflation reported yesterday showed an uptick to 1.9% ( headline ) with CPI trim hitting 3.0%

Canada 5 year bonds have added 30 bps in 2 weeks

Canada’s housing market – by every metric possible seems to be getting worse

While it certainly does not benefit any of us in the business to see higher interest rates, it is about time we start to plan for that reality, and build our business accordingly. If we start listening to what is out there, you will find that the back half of 2025 won’t be like the first half.

Bond markets are smarter than stock markets, and the bond market is quietly whispering to you right now. It is telling you that rates are going up. I said a few weeks ago that if we broke through 3% on the Canada 5 year, we could be in for some sustained pressure to the upside. Well, sure as shit, we broke 3%, and immediately added another 12 bps. Canada 5 year bonds look really comfortable hanging out here, and I personally think we could see them hanging out on the upper deck of the 3.25% to 3.32% range without a lot of difficulty in the coming weeks. All it is going to take is one report that shows sustained inflationary pressure, a good GDP report, or as I like to refer to it as ” less worse news” and bond yields could easily jump another 15 to 20 bps from here. If we clear the 3.35% range, then 3.55% is not off the table.

The Canadian dollar is surprisingly strong vs both the Euro and the USD. Sure, a lot of the issue is USD weakness, but the CAD has put in an impressive rally. This is due in large part to the fact that the currency markets agree with RBC, and do not see any more cuts in 2025 to the overnight rate. In fact, the currency market is backing up RBC and saying there will not be a rate cut until Q1 of 2026. Odds of a rate cut in July by the BOC are at 1%, which means futures markets are telling you that 99% of players believe no cut.

Inflation is ticking up slowly but surely. Add a tariff here, and a tariff there, and all of a sudden the headline number is going to bounce over 2% without much difficulty. I have said for the better part of a year that inflation is not contained, and that it would rear its ugly head again – and here we are. And inflation is not just a Canadian problem either. Globally we have seen:

Japan just posted its largest inflation number in 30 years

UK inflation came in at 3.70%

US inflation edged up – again, for a second month and is now sitting at 2.70%

So, if we listen to the bond market, and we listen to the currency market, and we listen to all of these inflation reports that are coming out, we are starting to see a trend emerge. I would suggest that you start to plan a business model for rates going the opposite direction of what you were told there were going to do. I would have a plan to deal with higher rates as we head into the back half of 2025 and the renewal cliff of 2026.

Now, I am certain that the dancing realtors of Tik Tok, and the people who have vested interests in lower rates will tell you that rates are going to drop, but the facts and data tell us otherwise. With the latest employment report for June blowing past expectations, it has almost eliminated a rate cut for September. If you were around in early 2022, there is a lot of eerily similar sets of data coming out. Data that anyone connected to real estate will not like.

If we keep seeing gangbuster employment, and if we see inflation edging up month over month over month, then we could easily be looking at a 25 bp hike, rather than further cuts. This is not my base scenario, but it is not off the table either. Uncle Tiff reacts to hard data, not Tik Tok dances and wishes. Data!!

As always, be careful WHO, and WHAT you listen to, and plan accordingly.