The real estate market as well as all markets remain on edge with policy decrees coming daily from the Oval Office.
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 25th, 2025
The listings bump we noticed a few weeks ago has turned into a trend that is being observed by real estate professionals and commentators. The phenomenon is mainly centred around the condo market where soft rents, higher financing rates and other rising costs are forcing investors to finally throw in the towel on properties where their costs exceed rental revenue. Who can blame them? Without price increases, it’s hard to justify a cash-flow negative investment. We will see the February numbers next week, but as of today it looks like price reductions are the way forward on condos. Townhouses and single family homes are thus far holding steady with inventory numbers that are more manageable and buyer demand remaining steady. With past cycles, we’ve seen weakness in the condo market eventually “spilling over” to townhouses and houses as move-up buyers get trapped not being able to sell their smaller property for what they need in order to make the larger purchase. I’ll be watching for signs of contagion closely as the spring market unfolds.
Cheaper financing rates will go a long way to helping absorb this supply and while they’ve become cheaper over the past 8 months, they’re still not at levels we became accustomed to during the pandemic. With inflation data coming in higher than forecast, rate cutting odds for the March 12 Bank of Canada meeting are now leaning toward a pause. The end of the recent tax holiday will be fully apparent with March’s data that is released in April. In other words, current inflation numbers might be muted due to the holiday and future data may show more inflation. Rising gas prices and cost pass-throughs by businesses retooling their supply chains will also be considerations of the central bank, while also trying to support the economy as it is in a “per capita recession”.
The real estate market as well as all markets remain on edge with policy decrees coming daily from the Oval Office. Figuring out how to interpret the often confusing signals has become a full-time job for some. One pundit summed it up well: we should take it seriously, but not literally. The end goal is increased US competitiveness and a reduced debt burden. Everything is on the table to get there. The financial system is no exception. This has now gained attention as what some are calling a “Mar-a-Lago Accord”, riffing on the Plaza Accord or Bretton Woods Agreements where leaders assembled (in 1945 and 1985, respectively) to determine how the financial system would be restructured. To be clear, this is not a real thing. But the idea is very real. The Trump administration want to rewrite how the US Dollar, and US treasury notes and bills, are used in order to achieve the above ends.
How this affects Canadians and those making real estate decisions is unpredictable. I feel Canadians should be taking the “51st state” threat seriously as well, just not literally. We will be pressured relentlessly until we are actively helping to solve the US’s above problems. The Canadian economy will be bearing the costs until ways are found to grow in a mutually beneficial way. This is a time where those experienced using game theory have an advantage in weighing potential outcomes. Using a traditional “classical economic” model to interpret the Trump administration’s maneuvering leads only to confusion and frustration.
Equity and commodity markets have begun to experience volatility as the above is digested. It’s remarkable how well they have behaved (big tech stocks not included), as any losses appear to be temporary and are quickly gained back. All eyes will be on Nvidia earnings this Wednesday for hints about the investment trajectory for AI infrastructure which is controlling most of the growth prospects of the US economy. Bitcoin, as of this writing, has lost a healthy 20% from its highs. But the real carnage has taken place in the other coins which have lost 50-90%. Gold is still threatening a break of $3000 and oil is below $70 again on slower growth expectations.
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.
Great reading Matt 👌