The same forces that are cooling the national housing market are putting pressure on the country’s already tight rental sector, pushing rents through the roof in many large cities and complicating of bank of canada attempts to subdue inflationExperts tell Global News.
data released from Canadian Real Estate Association (CREA) on Friday confirmed what many economists have suspected and what market watchers have been saying for months: Rising Rate of interest Country ownership is dragging the market down.
June home sales were down 24 percent year on yearCREA said, following a trend that has seen housing activity slow significantly since April.
Spring’s housing market has marked a drastic change for the past two years COVID-19 The pandemic, which saw a flurry of activity partly driven by rock-bottom interest rates.
Bob Dugan, chief economist at Canada Mortgage and Housing Corp. (CMHC), told Global News that the lower rates helped lower the bar for home ownership and ease pressure from the rental market as potential buyers turned their backs on mortgages. Traded in apartment leases.
“Even when interest rates were still low, a lot of demand was moving toward homeownership. And we’ve really seen that start to change,” Dugan says.
Higher interest rates keeping Canadians in the rental market
Bank of Canada move Increase your policy rate by a full percentage on Wednesday The benchmark interest rate in the country rose to 2.5 per cent, from just 0.25 per cent at the beginning of the year.
Higher rates from the central bank lead to higher mortgage payments and make it more difficult for some potential buyers to qualify for a loan.
And since rising interest rates have slowed the property market, the rental market meanwhile has seen a rise in prices.
The median rent for all Canadian properties was $1,885 monthly in June, which is a 9.5 percent year-on-year increase, according to Rentals.ca.
Prices are rising across the country but fare increases are even greater in major urban centres. Last month in Vancouver, the average one-bedroom apartment rent was $2,418, up nearly 20 percent year over year. A similar unit in Toronto costs $2,192 per month, up about 18.5 percent from a year ago.
Paul Dannison, Content Director at Rentals.ca, says that ownership is fast drying out for Canadians, with the rental market left to accommodate more and more people.
“One of the reasons for this is that as interest rates rise, people are less inclined to exit the rental market and buy their first home, or they will wait differently,” he tells Global News.
Higher pressure on smaller, less rented units
High interest rates aren’t the only fuel heating up the rental market.
Denison says that at the height of the pandemic, vacancies were relatively high in major urban centers as renters demanded more space and moved further.
But earlier this year, demand started swinging in the opposite direction.
“Now they are coming back. So smaller properties, some 800 square feet properties in tall buildings, the rents are really starting to go up on them. We have seen one-bedrooms go up quite a bit,” Denison says.
Dugan says Canadians aren’t the only source of demand to move back to the urban core, as a recent influx of immigration is putting more pressure on vacancy rates in larger cities.
With demand exceeding limited supply in the rental market, he says his biggest area of concern is in the low-priced units.
Dugan says that only “a very small part of the rental market” is affordable to the 20 percent of Canadians in the lower quintile of income.
As higher-income households price ownership out of the market and hold onto their rental units, the supply of cheaper units is rapidly closing out, pushing demand – and therefore rents – higher and higher.
While affordability in the ownership market is primarily a pain point for high-income families, Dugan worries that rent increases for low-income Canadians could push the housing system to its breaking point.
“The affordability in homeownership concerns me a little less because homeownership is more of an option. And if you can’t afford homeownership, you may be back in the rental market. If you can’t afford the rental market So where do you go?”
Danison says that while there is no crystal ball for inflation or other economic forces, he would be surprised to see relief in Canada’s tight rental market on the horizon.
“I think we’re in a little bit more pain. I don’t think rental rates will ever come down in the near future.
Rising rents ‘complicate’ Bank of Canada efforts
Affordability concerns for renters come at a time when cost of living is rising among most line items in the household budget.
Statistics Canada said annual inflation hit 7.7 percent in May as prices at gas pumps and grocery stores rose. Royal Bank of Canada said on Friday it expects price growth to reach eight per cent in June, marking a new 40-year high.
Bank of Canada interest rate hikes have targeted domestic sources of inflation, but Robert Hogg, assistant chief economist at RBC, told Global News that the impact of rising rents would “complicate” the central bank’s efforts in the short term.
Hogg says the Bank of Canada’s rate hike will be “ultimately successful” in removing excess demand from the Canadian economy and bringing inflation back on target. But while higher interest rates will dampen demand in most sectors of the economy, a hike in rents could stifle some of the central bank’s progress.
“Clearly, in a context where rents are going to be under upward pressure, this will keep things challenging for the Bank of Canada to deal with the inflation issue,” he says.
Robert Cavik, senior economist at the Bank of Montreal, told Global News in an email that rising rents will indeed “add some firmness” to the inflation figures, but he expects any further increases in rental prices to be available for furniture and other items. will be reduced by the fall in replacement cost. Accommodation Services.
“From a housing standpoint, this could be roughly a wash with respect to the impact on reported inflation,” he said.
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