Unfortunately, homebuyers don’t want “exciting” bond markets, so the presence of this uncertainty might be a drag on the market if it persists into the spring.
The Two Minute Market Update is intended to keep readers apprised of what’s going on in local real estate markets and in the global financial markets that affect real estate via inflation, interest rates, capital flows and public policy. It is best suited for those not able to keep up with all the news every day, but still wanting to be informed.
Two Minute Market Update, February 11th, 2025
In my end of year note, I suggested 2025 might feel like “a decade that happens in a year”. It’s not even mid-February and we’ve already seen the Prime Minister resign, prorogue parliament and an election will likely get triggered for this Spring. The US President has signed a swath of executive orders resulting in possibly the largest overhauling of the US government since the postwar era. He has also embarked on a never-ending tariff drama, threatening Canada, giving reprieve and then imposing some tariffs anyway. The turmoil has seen bond and currency markets gyrating. This volatility has left many prospective homebuyers rethinking that choice and staying on the sidelines, while sellers are more eager to bring their home to market early. This is resulting in some healthy inventory builds in advance of the spring market.
Interest rates are moving lower as the tariff spectacle unfolds. Bond markets are pricing in lower economic growth and higher unemployment as a result of these moves. Fixed rate mortgages are therefore becoming a little cheaper in addition to the variable rate mortgages that were already falling with recent central bank cuts. Volatility is likely to continue to react to the edicts and tweets coming from Trump’s office and close associates. The ultimate direction of rates is likely to remain “uncertain” – in contrast to the more recent past where parsing Central Bank speeches about the direction and pace of rate changes was what onlookers followed most closely. It’s certainly more exciting than watching television panels debate the language change of “moderate” to “modest” by a central banker. Unfortunately, homebuyers don’t want “exciting” bond markets, so the presence of this uncertainty might be a drag on the market if it persists into the spring.
Bond yields are now approximately 50 points below where they were a month ago. Despite the projected impacts of tariffs, inflation will also impact yields going forward. To that effect, I’m keeping an eye on food prices, gas prices, and the rising costs of other necessities like household appliances and key building materials. Not only rising because of tariffs, the weak Canadian Dollar will have some importers increasing prices. Should we expect the word “stagflation” to make a comeback (that’s low growth and high inflation)?
Stock markets have been digesting all the volatility quite well with tech stocks actually being the slowest performer. This “re-rotation” into more traditional industries like energy and health care is good for the overall vitality of the multi-year rally. The “Magnificent 7” can only continue their leadership for so long before other companies are needed to do the heavy lifting. In Canada, the resources and gold mining sectors have finally taken off, leading the TSX to new all-time highs.
Bitcoin continues to move sideways below $100,000 as perhaps a little disappointment over the lack of crypto-related announcements has fast money traders looking elsewhere. The already announced changes, including a full integration of stablecoins into the US financial system, and the allowance of banks to custody bitcoin for depositors, are only going to bring crypto and bitcoin further along the adoption curve of most people. Gold has broken out of its consolidation and is making new highs. Tariff threats are driving a return to its “flight to safety” status and global investors, possibly even central banks, are accumulating. Oil is stuck in its range, but gasoline and natural gas are trending upward. Metals like copper and steel are rocketing higher in response to the tariff announcements.
Matthew Stiles
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Disclaimer: The information provided in this column is for general informational purposes only and does not constitute financial, investment, or other professional advice. While I strive to provide accurate and up-to-date information, I make no warranties or representations as to its accuracy, completeness, or reliability. Any actions taken based on this information are at your own risk. Always consult with a qualified financial advisor before making any investment decisions.