Skating Ahead of the Puck: Navigating Canada's Rate and Housing Markets in 2025

In hockey, the adage “skate to where the puck is going, not where it has been” encapsulates the essence of strategic foresight. For investors in Canada's economy, this wisdom applies now more than ever. Avery Shenfeld, CIBC's chief economist, has long championed this mindset, urging market participants to anticipate shifts in inflation, interest rates, and trade dynamics rather than react to them. In 2025, as Canada navigates a crossroads of monetary policy, housing volatility, and U.S. trade tensions, the puck's trajectory is clearer—but the path to profit demands bold, proactive decisions.

The Puck's Current Position: Inflation, Rates, and Trade Crossroads

The Bank of Canada's recent rate cuts—trimming its benchmark rate to 2.75% by early 2025—reflect a pivot to support domestic spending amid rising U.S. tariff threats. While these cuts signal relief for borrowers, their efficacy is constrained by external headwinds. Inflation, though moderating from peaks, remains sticky in everyday costs, complicating the central bank's balancing act.

Meanwhile, U.S.-Canada trade negotiations loom large. A potential 25% tariff on non-energy exports and 10% on energy could plunge Canada into recession by late 2025, according to Shenfeld's downside scenario. Conversely, a negotiated trade truce would unlock modest GDP growth of 1% in 2025, buoyed by lower rates and a rebound in housing activity.

Housing: The Most Volatile Ice Surface

The housing market epitomizes the “puck” analogy. After a post-pandemic boom, prices have stabilized but remain volatile. Average home prices hover near $718,000, with forecasts predicting 4.1% growth in 2025 (per Fannie Mae) if trade tensions ease. However, elevated mortgage rates—projected to average 6.4% in 2025—act as a brake on demand.

The data is clear:
- Mortgage Rate Projections: Fannie Mae sees rates ending 2025 at 6.2%, while the Mortgage Bankers Association (MBA) anticipates a mid-year spike to 7%, settling at 6.7%.
- Price Dynamics: Modest gains are expected unless trade wars escalate, which could trigger a 2-3% price dip.

Investors must ask: Is this a buyer's window, or a prelude to deeper corrections?

Skate to Where the Puck Is Going: Positioning for 2025's Two Futures

Shenfeld's framework demands preparing for both scenarios:

Scenario 1: Trade War Escalation (Risk-Off Portfolio)

• Defensive Plays: Allocate to utilities (e.g., ENB, TCPL) and non-cyclical equities insulated from export declines.
• Bond Haven: Government bonds and high-grade corporates (e.g., XBB, XIC) will thrive in a recessionary environment.
• Currency Hedge: The Canadian dollar's stability hinges on U.S. Federal Reserve cuts. Investors may short CAD if trade tensions persist.

Scenario 2: Trade Truce and Recovery (Growth-Seeking Plays)

• Housing Recovery: Buy into housing starts (e.g., XRE, HRE.TO) and REITs (CVE, XTR.TO) as lower rates and inventory improvements spur demand.
• Cyclical Equities: Energy and industrials (CVE, XIN.TO) could rebound if trade barriers ease.

The Call to Action: Act Before the Puck Moves

The puck's direction is not yet set, but time is fleeting. Investors must act now to:
1. Diversify: Split portfolios between defensive bonds and housing-linked assets.
2. Hedge Currency: Use CAD short positions to mitigate trade-war risks.
3. Monitor Trade Signals: A 30-day U.S. tariff pause offers a window to negotiate—but markets will price in outcomes by Q3 2025.

Final Whistle: The Prize Lies Ahead

In 2025's volatile arena, the puck is speeding toward two distinct outcomes. Those who skate to where it is going—by anticipating trade resolutions, rate cuts, and housing trends—will secure gains. Those who linger, watching past trends, risk missing the next chapter of Canada's economic story.

The ice is frozen. The game is on. Where will you skate?