Traditionally December marks a month when we cast our minds to hope for the next year. As the 21st century says farewell to it’s first quarter, I felt I owed this century some homage, by not predicting what was going to happen when the the 2000’s turns 25, but by forecasting what may lose its significance going forward. When I was in high school I had a desire to become a lawyer. I decided when I got into my first year of university that I was going to volunteer as a probation and parole officer, to get my legal feet wet. I worked with many great people who trained and mentored me through the Probation and Parole office in the east end of Hamilton.
I would meet once a week in the evenings at their offices on King Street East, and I mainly had younger male clients with a series of minor offenses or older men with a single offense. I remember during my training for the role, there was this theory regarding young men who were in and out of trouble during their youth. The magic chronological number was 25… the theory being that when a man reaches the age of 25 a light switch either goes off or stays on. They either continue their journey of destruction or they settle in to a life on the straight and narrow, so to speak, and their pre-25 life ends abruptly.
That’s how I feel about 2025. I feel we are going to shed the stuff that got us here throughout this first quarter and, there are things that will not make it into the second half of this decade. If you have the stomach for a eulogy to some of the concepts and things that made up this 25 year old century then read on. If you are a Swifty, or an investor in micro condos, or a mortgage rate junky or someone who measures time by Covid 19, then turn your sights onto something else, as this will not be for you.
Move Over Bank of Mom and Dad… Grandparents Are Taking Over
It used to be that grandparents were all about spoiling their grand children with the latest toys and sugary treats, but now they are getting into the finance gig. Over the past 10 years grandparents have transitioned from contributing to their grand children’s education to helping with a down payment for a home.
There are financial vehicles that can make this happen, and your financial advisor can help you navigate through all of the letters from the FHSA (First Home Savings Account) to TFSA (Tax Free Savings Account) and RRSP (Registered Retirement Savings Plan). There is even a way to use the RESP (Registered Education Savings Plan) whereby the original contributions can be withdrawn on a tax-free basis then either gifted to your grandchild or put into their FHSA. 2025 should be about surrounding yourself and your clients with the best experts to facilitate this transfer of wealth.
Say Good Bye to the Micro Condominium Unit
Remember all the hype around tiny houses? I totally get that clever use of space on the ground, where you can get out into open space immediately. We all know builders loved the micro-unit and built a ton of them in high-rise condominiums. There is a glut of this type of unit on both the re-sale and rental markets. Some are under 400 square feet and fail the ‘swing the cat test’. This was the home building industry’s answer to the affordable housing crisis for both end users and investors. But consumers realized it wasn’t easy to live in such small square footage. As a result we are experiencing the dawn of the housemate. People getting together to buy or rent larger units. With a larger unit you get greater living space, cooking and eating space. Yes there are practical issues with this type of communal living but they can be overcome. As a result some smart builders are answering this new demand by building larger units with two primary ensuites and bedrooms of equal size. 2025 will be the year builders respond to the needs and practical desires of home owners and renters alike.
Renting Won’t Be a Dirty Word Anymore
There is a lot of chatter around renting vs owning a home where a recent Statistics Canada study found that the median net worth of home owners was 10 times that of renters. Even though this may be true, renting has still become a choice for many Canadians. Approximately 1/3 of households rent and it is becoming a trend with older Canadians to cash out of their homes, invest their capital and forgo the non-recoverable of home ownership like regular maintenance, municipal taxes, and in some cases condominium fees. Also remember a third of households have a mortgage. Isn’t a mortgage a rental of money?
A Magazine Is Reborn
Everyone around me loves Costco except for me! I do appreciate how clever Costco is at merchandising products, and making consumers spend copious amounts of money on household items in quantities they may not need, and that shopping at Costco is a ritualized event. As a result of how good Costco is at fostering consumerism, I am too weak of a consumer to go there and so I choose not to. Recently, I read in the New York Times that Costco’s magazine called Costco Connection (CC) has a distribution of 16 million copies, and is the third largest US magazine. The likes of Oprah, Tom Hanks, Jimmy Kimmel and Bruce Springsteen have all been on the cover of CC! According to Costco 93% of its readers own a home (no surprise there) and have an average household income of nearly $200K.
Costco has gone back to an old school success strategy of winning door to door instead of click and un-click. Their readers swear by its content, and more importantly trust it. Which is a far cry from the low levels of trust that influencers have been experiencing, as consumers feel they are just product prostitutes and not advocates for a better consumer experience. In 2025 the influencer may diminish in effectiveness and the established magazine which separates church from state, will be the new trusted resource of consumerism.
Cheap Money Won’t Fuel Demand… Demand Will
There have been 4 successive rate drops in Canada, and the Bank of Canada says there are going to be more. Long term rates have been coming down, and the delta between variable and fixed is shrinking. Is it that buyers are waiting for further drops to get moving again? There are ways to hedge the rate cuts by going variable and locking in when rates have hit bottom, but there isn’t a hedge when it comes to where home prices can go. In 2025 if all the economic junkies including the federal government are correct, we will be experiencing one of the biggest housing tail winds since the overnight rate was .25% in March of 2022.
The last time we saw anything close to this time period was in the first quarter of 2009, just after we had a very buoyant market in 2007 followed by the financial crisis of 2008. As a result of a declining market/economy the Bank of Canada reduced the over night rate by 50 bases points, and 12 months later in April of 2010, the Canadian Residential Benchmark price rose by 13%. 2025 will experience more rate drops, an increase in insured mortgages up to $1.5 million dollars and 30 year amortizations again, coupled with some pent up demand, should make for market stabilization with an increase in home prices to follow.
Even The NFL Has To Dig Deep and Get Financially Creative
Recently at a meeting in St. Paul Minnesota, NFL royalty met to decide on how to gain greater liquidity for its owners. They discussed how Taylor Swift could become a commentator and spread the wealth of capturing a new audience like she has for the Chiefs. Just kidding. There was a monumental vote which allowed the most valuable sports league in North America to sell a 10% stake to private equity. That means many of these owners can now retire debt or build billion dollar stadiums by accessing this kind of capital which is different than traditional interest only borrowing. Private equity gets paid through performance fees and dividends etc. So what does that have to do with the price of houses in Leamington Ontario. Well it doesn’t but building a creative bridge to home ownership does.
2025 could be the beginning of being more creative with how we finance home ownership for first-time buyers through joint ownership, where a downpayment is re-payed once the property is sold, and is interest free throughout the duration of the home ownership.
The investor/institution would then receive compensation through capital appreciation of the property which is shared proportionately (such as a market value mortgage), without being burdened by a monthly payment. The private equity investor would work together with the home owner to plan and invest in improvements which would benefit both parties when they go to sell it.
What Does Warren Buffet Know
Warren Buffet has been unloading Apple stock at a voracious rate, however it still remains Berkshire Hatheway’s largest single investment by far. It is rumored that Buffet isn’t really comfortable with tech stocks, and that after the passing of his vice-chair Charlie Munger who was the technology patron, he has decided to reduce his stake in Apple. But maybe the Oracle of Omaha is realizing what some of us Apple junkies have been feeling for a while. That Apple has not come out with anything that’s been innovative in a long while from a phone perspective. The only difference on the iPhone lately is the number on the box. Apple’s only foray into innovation was an AI operating system (late to the party don’t ya think) which can be updated on any late model phone. In 2025 consumers are not going to buy into hype anymore. They are looking for real value that rewards them, and innovation which makes their lives easier.
Mortgage Defaults… Are They Really Going to Be a Thing in 2025???
Canada Mortgage and Housing measures arrears by how many home owners have missed at least 90 days of payments. Currently it is on the so-called rise in higher priced areas like Vancouver and Toronto where the arrears rate has increased more rapidly. Currently in Canada the 2024 Q2 delinquency rate is 0.19 compared to 0.14% in the fourth quarter of 2022 after several rate increases. There are approximately 6,000,000 mortgages in Canada which makes the current number of 90 days plus in payment arrears at 114,000 mortgages vs Q4 of 2019, Q1, Q2 and Q3 of 2020 at 0.28% or 168,000 mortgages during the beginning of Covid 19. Without a doubt the noise around mortgage defaults in 2025 will be there, but in reality it will fizzle out as the resilient Canadian home buyer navigates themselves out of it as they have in the past.
No Thanks, I’m Good with a 25 Year Amortization
I have had the pleasure of seeing Caroline Rogers the Deputy Governor of the Bank of Canada speak on a few occasions. If I am correct she always does a a state of the housing market at the tail end of the year. She doesn’t mince words and this year she did not disappoint. The quote which was carried by most of the media was there is “no free lunch” coming on December 15th, 2024 when mortgage rules are relaxed. Rogers explained that based on today’s mortgage rates and at the current average price of a home across Canada, if home buyers opt for 30 years instead of a 25 year amortization they will decrease their payment by approximately $200 a month but will end up paying $50,000 more over the life of the mortgage. 2025 will be out with uninformed and willy nilly borrowing strategies and consumers will opt to be more conservative with a goal to pay off their mortgages.
Conrad Zurini
Broker of Record / Manager
conrad@rmxemail.com | 905-719-3033