It’s safe to say that inflation is already threatening to come back after central banks began easing monetary policy last June (Canada) and September (US).
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, January 14th, 2025
The North Shore real estate market is slowly shaking off the holiday lull and gearing up for spring. While still low, levels of inventory are higher to start the year than they have been in recent years. Early returns from open houses and listing agents show buyers are very actively viewing and bidding on properties. It’s too soon to tell whether this is a false start or if it’s a sign of things to come. Sellers on the sidelines will be interested in whether this activity has any impact on pushing prices higher and whether it may help them achieve a price they’re comfortable with.
It’s safe to say that inflation is already threatening to come back after central banks began easing monetary policy last June (Canada) and September (US). Better than expected employment data on both sides of the border are the latest data point suggesting this. Wednesday will see the US’s inflation report that will either confirm or disconfirm this recent trend (Canada’s on the 21st). But already, the likelihood of a Fed rate cut on January 29th is basically zero. The Bank of Canada will have a rate decision on the same day, for which the odds have just shifted toward a pause. In my annual report from last summer, I labelled a slower pace of rate cuts or an outright reversal as one of the major risk factors for real estate in 2025 and beyond. The risk is that buyers again lose purchasing power and sellers throw in the towel on the better conditions they’ve been waiting for. The condo market would be most affected, with the attached and detached segments less so. The overall sentiment remains optimistic that inflation will continue to cool, allowing for more rate easing and a busy market spurred by buyers with newfound purchasing power. That may still happen, but I am keeping an eye on the risks and advising my clients to be mindful.
Bond markets are responding to the above by collapsing under the weight of higher rates. Longer duration government bonds in the US are nearing their 2023 highs. The Canadian situation isn’t too far behind. This directly impacts fixed rate mortgages as well as a lot of commercial lending that contributes to economic activity (such as large housing developments). It has budget implications for governments who begin paying more for debt when it rolls over, and should it get any more stretched may require the central banks to shift toward a hawkish stance to avoid inflation expectations from becoming “unanchored”. That’s a whole lot of reasons to be worried, but the fact remains that there exists policy levers aplenty to be pulled both by Trump and (eventually) by a Federal Conservative government in Canada which would be pro-growth, anti-regulation and offering tax relief for individuals and businesses. This could prove to be more consequential to affluent housing markets than interest rates.
Equity markets have completed a modest 5-6% correction in advance of the Trump inauguration, turning the prospect of a “sell the news” event into more of a party on Wall Street. However, in the process of this small correction, ultra-speculative stocks, cryptos and even the “magnificent 7” have been taken to the woodshed. This bleeding should probably be looked at as positive, allowing for participants to reposition and rotation to continue.
Bitcoin’s correction continued, sending it briefly below $90,000 before it firmed up once again; a 5th test of support. Considering how badly the rest of the crypto space has done in the past month, bitcoin’s relative strength is notable. Gold and precious metals continue to trade sideways, seemingly always threatening a breakout that never comes. Mining stocks are still not having fun. The oil market is perking up as new sanctions attempt to pressure Russia into ending the war in Ukraine. They didn’t work the first time, but the market seems to think this round will have a bigger impact on supply, as the Russian “shadow fleet” of tankers used to transport to India and China now come under sanction as well. We’ll see if they find ways around these and get their oil to market, or if it succeeds and drives up the price as a consequence. We should be mindful of the inflationary impacts if gasoline prices begin to spike.
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.