{"id":49206,"date":"2025-01-26T19:11:00","date_gmt":"2025-01-26T19:11:00","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/real-estate\/who-wants-to-talk-economics\/"},"modified":"2025-01-26T19:11:00","modified_gmt":"2025-01-26T19:11:00","slug":"who-wants-to-talk-economics","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=49206","title":{"rendered":"Who Wants To Talk Economics?"},"content":{"rendered":"


\n<\/p>\n

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I swear, if I hear the words \u201cTrump tariffs\u201d again, I\u2019m going to throw something.<\/p>\n

Call me naive or tell me my head is in the sand, but is it really\u00a0that\u00a0<\/em>newsworthy?\u00a0 Do we really need to see this atop every single news feed, every day, in perpetuity?<\/p>\n

\u201cDavid, of course it is!\u00a0 The world is sitting on a knife\u2019s edge!\u201d<\/p>\n

Alright, I will admit, we\u2019re certainly entering into a\u00a0very\u00a0<\/em>interesting time.<\/p>\n

The United States has a new(ish) president who is doing a complete 180 on the policies enacted by the previous administration<\/p>\n

Canada has no prime minister and no leader at the moment and will be entering into an election.<\/p>\n

Ontario will more than likely also be entering into an election this year, despite objections from the Green Party.<\/p>\n

That\u2019s a lot.<\/p>\n

Yup.\u00a0 It certainly is.<\/p>\n

But what are we supposed to do?\u00a0 Just put the world on pause until the proverbial \u201cdust settles?\u201d<\/p>\n

I was chatting with a client last week who said that after Trump takes office there will be \u201cmore certainty.\u201d<\/p>\n

I responded that I respectfully disagree.\u00a0 There won\u2019t be any certainty, in fact, there will be nothing but\u00a0un<\/em>certainty for the next four years.<\/p>\n

Abnormal become<\/em>s<\/em> normal.<\/p>\n

On Trump\u2019s first day in office \u2013 will he enact 25% tariffs?<\/p>\n

Maybe.\u00a0 Maybe not.\u00a0 But either way, what clarity does that bring?<\/p>\n

Trump did\u00a0not\u00a0<\/em>enact tariffs.<\/p>\n

So is that it?\u00a0 Time to celebrate?<\/p>\n

As I told my client the other day, \u201cTrump will come in, probably not enact tariffs, but will continue to talk about it, even if just to create a buzz and\/or to hear his own voice.\u00a0 That will not provide any\u00a0<\/em>certainty.\u00a0 But regardless of what happens in the United States, we have no prime minister!\u00a0 We have a two-month leadership convention ahead,\u00a0then<\/em> an election \u2013 maybe, then\u00a0<\/em>a new prime minister \u2013 eventually, and\u00a0then<\/em> an election at the provincial level as well.\u201d<\/p>\n

How in the world are things about to get\u00a0more certain<\/em>?<\/p>\n

Fast forward to the end of 2025:<\/p>\n

-We have a new prime minister
-We have a new mandate for the government of the province of Ontario
-We have twelve months of the US President under our belts, come hell or high water<\/p>\n

Maybe\u00a0then<\/em> we can say that we have certainty?<\/p>\n

If you think back to the COVID-19 pandemic, one of the most over-used and eventually overly-annoying catch phrases was the words, \u201c\u2026.in these uncertain times<\/em>.\u201d<\/p>\n

It was tacked on to the end of everything.<\/p>\n

You could go out to dinner, pause while looking at the menu, and say, \u201cI\u2019m finding it very hard to decide between the branzino and the filet mignon\u2026\u2026in these uncertain times<\/em>.\u201d<\/p>\n

So aren\u2019t we used to uncertainty by now?<\/p>\n

I certainly am.\u00a0 Pardon the pun\u2026<\/p>\n

December\u2019s inflation data was released this week and the rate fell to 1.8%<\/strong> from the 1.9% figure posted in November.<\/p>\n

Of course, the\u00a0GST Holiday\u00a0<\/em>was said to have contributed significantly to the decline:<\/p>\n

\n

With food excluded, December\u2019s inflation rate came in at 2.1%.<\/p>\n<\/blockquote>\n

Call this a caveat, an asterisk, or a reason to explain away the fifth straight month that inflation has been at or below the 2.0% target set by the Bank of Canada if you want to, but it likely\u00a0increases<\/em> the odds of a cut to the lending rate on January 29th.<\/p>\n

Earlier this week, some friends of Bosley Real Estate came in to present their economic update.<\/p>\n

Thanks to Outline Financial<\/a> for allowing us to use their slides!<\/p>\n

Looking at the year ahead, and into 2026, this is what the major lenders believe is going to happen with the Bank of Canada\u2019s lending rate:<\/p>\n

\"\"<\/p>\n

Again, consider that this was drawn up\u00a0before<\/em> the inflation data was released, but the banks have not revised their estimates since.<\/p>\n

With the Bank of Canada rate currently sitting at 3.25%, only one<\/em> of the six lenders profiled (the \u2018big five\u2019 plus NBC) believes that the rate won\u2019t go below 3.0% this year:\u00a0Scotia.<\/em><\/p>\n

Scotia\u2019s prediction is a rate of 3.0% through 2025\u00a0and<\/em> 2026, although I don\u2019t know how much these lenders can glean into 2026 at this point.<\/p>\n

On the opposite side of the spectrum, one lender believes that the rate will drop from 3.25% all the way down to 2.00% by the end of 2025: RBC.<\/em><\/p>\n

For the remainder of the lenders, predictions for the rate by the end of 2025 are:<\/p>\n

BMO: 2.50%
TD: 2.25%
CIBC: 2.25%
NBC: 2.25%<\/p>\n

Whether you want to take an average of these rates or simply pick your favourite lender, remains your call.<\/p>\n

But the consensus seems to be around 2.25% \u2013 2.50%.<\/p>\n

That\u00a0will\u00a0<\/em>have an impact on the financial market, real estate markets, the exchange rate with the USD, and of course, the overall economy.<\/p>\n

Looking back at the predictions from the start of 2024 is a very interesting exercise!<\/p>\n

Outline Financial was able to pull this from their archives:<\/p>\n

\"\"<\/p>\n

This may cause you to ask, \u201cWhat good are predictions if they can simply be revised?\u201d<\/p>\n

Let\u2019s look at the predictions for the end of 2024:<\/p>\n

BMO: 4.00%
Scotia: 4.00%
RBC: 4.00%
CIBC: 3.50%
TD: 3.50%
NBC: 3.25%<\/p>\n

As we know, the BOC rate at the end of 2024 was 3.25<\/strong>%.<\/p>\n

Who would have figured?<\/p>\n

National Bank<\/em> for the win!<\/p>\n

If only these folks had entered the TRB Interest Rate Gam<\/em>e from last January!\u00a0 That reminds me, we still need to define our 2025 game, but I digress\u2026<\/p>\n

Now, what if we compared the 2025 predictions for 2025 versus the 2024 predictions for 2025?<\/p>\n

It would look like this:<\/p>\n

Scotia: 3.25% (2024) vs. 3.00% (2025)
BMO: 3.00% (2024) vs. 2.50% (2025)
RBC: 3.00% (2024) vs. 2.00% (2025)
NBC: 2.75% (2024) vs. 2.25% (2025)
CIBC: 2.50% (2024) vs. 2.25% (2025)
TD: 2.25% (2024) vs. 2.25% (2025)<\/p>\n

Note that TD Bank is the only one of the six lenders who offered the same<\/em> prediction for the BOC rate at the end of 2025, both at the start of 2024 and the start of 2025.<\/p>\n

Alright, so where are interest rates going?<\/p>\n

As of January 17th, the probability of a rate cut at the next scheduled announcement by the Bank of Canada on January 29th:<\/p>\n

\"\"<\/p>\n

Of course, that was last week.<\/p>\n

This week, it\u2019s a whole different ball game, right?\u00a0 The world is changing daily!<\/p>\n

Well, perhaps I\u2019m being dramatic.\u00a0 But after the inflation data for December was released on Tuesday, the markets were pricing the odds of a rate cut at 82.0%.<\/a><\/p>\n

Is the same thing happening in the United States?<\/p>\n

Nope\u2026<\/p>\n

\"\"<\/p>\n

The United States Federal Reserve is\u00a0also<\/em> meeting on January 29th, and the market-implied odds of a rate cut were a paltry 1.0%<\/strong>!<\/p>\n

I\u2019d like to know which economists made up that 1%.<\/p>\n

It\u2019s not quite as bad as the\u00a0one<\/em> voter, out of 394, who did\u00a0not<\/em> vote for Ichiro Suzuki<\/a>\u2018s entrance into the Baseball Hall of Fame this week (sidenote: all ballots need to be made public, starting next year\u2026.) but it still feels like 1% of those surveyed are\u00a0trying\u00a0<\/em>to be the outlier.<\/p>\n

It\u2019s worth noting, as the folks at Outline Financial did, that the policy rate of the US Federal Reserve usually\u00a0<\/em>declines ahead of the policy rate of the Bank of Canada, but that hasn\u2019t happened during this cycle of rate cuts:<\/p>\n

\"\"<\/p>\n

\u00a0<\/p>\n

Lastly, what\u2019s happening in the market with fixed and variable-rate mortgages?<\/p>\n

Fixed rates, which are determined by the bond market, have been declining steadily since the summer of 2023 when the 5-year government of Canada bond hit a high of 6.14%.<\/p>\n

In January, the bond yield remained unchanged from December at 4.44%.\u00a0 This means that even\u00a0if<\/em> and\u00a0when\u00a0<\/em>the Bank of Canada cuts the key lending rate, while the variable rate will decline, the fixed rate likely will not:<\/p>\n

\"\"<\/p>\n

Lastly, the percentage of borrowers taking a\u00a0variable-<\/em>rate<\/span> mortgage continues to climb substantially, now up over one-quarter<\/em> of all loans.<\/p>\n

Meanwhile, the percentage of borrowers taking the time-tested, almost-by-default\u00a0fixed-rate<\/em> mortgage is currently bottoming out at only 10.3%:<\/p>\n

\u00a0<\/p>\n

\"\"<\/p>\n

\u00a0<\/p>\n

Phew!<\/p>\n

That was a\u00a0lot<\/em> of data!<\/p>\n

And I hope it made sense to you, not only because it\u00a0might\u00a0<\/em>be boring to many, but also because I\u2019m coming down with a serious cold and I\u2019m not all there.<\/p>\n

Man, I worked\u00a0hard<\/em> in December to avoid getting the same strep throat that my wife, son, and daughter all had.\u00a0 I slept in the damn basement for a week!<\/p>\n

But who among us\u00a0doesn\u2019t\u00a0<\/em>get sick in January?\u00a0 This cold is an annual event for me.\u00a0 One that you could most\u00a0certainly\u00a0<\/em>predict.<\/p>\n

See you on Monday, folks!<\/p>\n