What would another 1% mean to you?

2025 is upon us!

While we're only a few days into the new year, it’s already shaping up to be a challenging one for Canadians. As I write this newsletter, Bank of America has just announced that they don’t expect the Federal Reserve to implement any further interest rate cuts in 2025 (link here).

Our neighbors to the south, who jokingly like to claim Canada as their 51st state, are bracing for an unpredictable new government. Meanwhile, their economy seems to be doing much better than ours (link here).

Now, let’s dive into the GTA's real estate market data for December 2023:

Here’s our take:

• Total Residential Transactions: Almost on par with December 2023, showing that trends are closely following seasonal patterns.
• Total New Listings: Up 20% from last December, with 787 more homes listed. If this trend continues (or grows), it could indicate that sellers' patience is wearing thin. After all, we’re heading into the largest wave of post-pandemic mortgage renewals in 2025 and 2026.
• Sales-to-New-Listings Rate (Absorption Rate): Declined from 88% to 72% compared to December 2023. This suggests buyers were less enthusiastic about real estate than sellers!
• Average Selling Price: A modest 1.6% decline means prices are very much aligned with our 2024 prediction that the market would move sideways.

What should we expect in 2025?

To understand what lies ahead, let’s examine the challenges and opportunities this year:

Challenges:

1. Political Uncertainty: Both Canada and the U.S. face new governments, which the market doesn’t like. Uncertainty is rarely a friend to stability.
2. Revamped Immigration Policies: Immigration is being slashed, meaning fewer new immigrants bringing money into the market.
3. Currency Woes: The Canadian dollar is struggling, with an exchange rate of 1.44 at the time of writing. If it continues to slide, investors may look to the U.S. as a more attractive option.
4. Economic Concerns: Rising unemployment rates will not help our real estate market.

Opportunities:

1. Increased Affordability: Lower borrowing costs could bring relief. The consensus, until today’s U.S. job data, was for a 0.75% to 1% rate cut this year. This would boost variable mortgage affordability and buyers’ purchasing power.
2. Record Mortgage Renewals: 2025 will see a record number of mortgage renewals. This presents an opportunity for buyers and, simultaneously, a challenge for sellers. The big question: which side will come out on top?

Honestly, there’s not much else to be optimistic about at this point.

As we closely follow the data over the next few months, one thing seems almost certain: we’re going to see a healthy number of transactions this year. The real question is the direction the market will take—will supply or demand dominate?

We still stand by our motto: "Higher for longer" when it comes to interest rates. And we still believe the market will continue to move sideways in 2025. Most importantly, we stand by our belief that Canada remains a great country—it just needs a little love!

Until next month,
Kam
January 2025