Ghosted

Want another reason why real estate is pooched this year?

Good. We have a fresh one.

The growing consensus among economists is that all those rate cuts we’d get in 2025 are now history. Long-term bond yields are hanging in over 3% (the rate was one-third of one per cent in the pandemic), which means mortgages stay put. The spring rutting-season market croaked. Now the summer looks like a sales desert.

Yes, the Bank of Canada has four more rate-setting party days left in the year, but the chances of seeing even one weensy quarter-point dip are thinning. It’s more likely now our CB will stay cautious. Some people believe if there’s a rate move in the next twelve months, it could just as easily be up as down.

But wait. Why did this happen? Wasn’t Trump supposed to crush Canadians exports and jobs, leading to a collapse in the maple economy, tumbling mortgage rates and a meaningful drop in real estate values?

Here is the current reality, and why there will be no 1.5% home loan rates anytime soon.

First, the economy sucks, but in an acceptable way. Tariff Man has whacked some sectors and some jobs, but the overall machine is chugging along. No recession. No surge in inflation. No wild escalation by Ottawa of this dumb trade war.

Second, look at Bay Street. The stock market is having a jolly time. The TSX index is ahead 10% so far in 2025, and the gain over the past 12 months is more than 19%. No need for lower rates and monetary stimulus there.

Jobs? We’re good. The latest report showed a monthly gain of 83,000 (huge) with the jobless rate ticking down to 6.9% – about where it was pre-Trump. Employment has been pushed along by patriotism, as we all cancel trips to Vegas and shop for Canadian veggies.

Meanwhile inflation has been mostly under control, but not vanquished. The headline rate is 1.9% and the core is a tad steamier at 3%. Prices are not romping higher, but we face the threat of more tariffs from the orange one, and that could hit the CPI fast. So our central bankers are in no mood to hack loan costs, increase borrowing and add to the problem.

And then there’s Big Daddy.

PM Carney has promised to push ahead major national infrastructure projects (like a pipeline), pump another $25 billion in building affordable houses and wildly increase defence spending. At the same time, he’s cut income taxes, eliminated the carbon tax and recently killed off the digital services tax. No social program spending has been reduced to offset the spending.

So, ya know what that means. More deficits. Bigger ones. It’s for a good cause – to lessen dependence on our now-unstable and sketchy main market and trading partner – but it translates into increased government borrowing, spending and economic activity. This is fiscal stimulus, which means the central bank does not need to add monetary stimulus (through lower rates).

Put it all together and the Bank of Canada sees no valid reason to pull trigger on a rate cut. Not next week, not in the autumn, nor before Christmas.

So, mortgages stay in the 4% range through the end of 2025. And in less than twelve months the existing Canada-US-Mexico trade deal, which is currently shielding most of our exports from tariffs, expires. Trump signed it during his first term, then called it a horrible agreement, and now vows to gut the Canadians car and supply management sectors in any revised document.

In short, it ain’t over yet. It’s just started. 2026 could be a corker.

Keep your job. Stay married. Stay invested. Hug your cows.

About the picture: “Hi Garth, thank you for the fantastic blog,” writes Andy. “Staying the course with my balanced and diversified portfolio of ETFs, working at topping up my RRSP and TFSAs (here’s and mine). I tune in for the  call weekly as well. It really helped through the chaos of C19.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/07/21/ghosted-2/