An interest rate hold from the Bank of Canada could give the country’s rental market a much-needed break from escalating costs, experts say.
The average cost to rent a one-bedroom apartment in Canada hit a record high of $2,117 per month in August, marking a 9.6 per cent annual increase, according to data from
Rent climbed even higher in the country’s most populated areas. In Vancouver, a one-bedroom apartment rose 13.1 per cent year-over-year to $2,988 in August. In Toronto, the same unit rose 10.5 per cent to $2,620, the data showed.
Experts told that a rate pause from the Bank of Canada will likely help dampen these dramatic rent increases, because a stable overnight lending rate makes costs more predictable for both landlords and tenants.
The central bank announced Wednesday that it would hold its benchmark interest rate at five per cent for the second consecutive time.
“This rate hold will make things a lot easier for the rental market because it is signalling stability,” Mike Stewart, a Vancouver-based realtor, told in a phone interview.
The pause signals that the central bank sees inflation as coming under control, which indicates to renters that their living costs will stabilize overall, he added.
“The rate hold might also prompt some sidelined homebuyers to enter the market, thereby freeing up rental supply, which should ease some of the pressure renters are feeling as well,” Stewart said.
While some landlords might be tempted to raise rents should their current tenant leave, the market will ultimately set the rates, he argued.
“What we’re seeing is an overall softening in Vancouver rents as the market begins to balance out amid rate holds,” Stewart said.
Toronto-based realtor Davelle Morrison echoed Stewart’s sentiment.
“The rate pause is an overall good thing for the rental market as it gives landlords a sigh of relief that their mortgage won’t go up any further, meaning they won’t need to necessarily increase their rent,” she explained.
While the decision to keep rates on hold may help cool the rental market, trends in longer term bond yields could provide an offset, according to an economist with the Canada Mortgage and Housing Corporation (CMHC).
“The rate pause will help ease the pressure on the rental market, but what worries me is the rise in bond yields,” Bob Dugan, chief economist at the CMHC, told in a phone interview.
The average first-time homebuyer will usually lock in a fixed-rate mortgage based off a five-year government bond, and these bond prices have risen in the past few months, he explained.
“The expectation that the Bank of Canada will keep rates high for longer is being reflected in higher bond yields, and just because the (Bank of Canada) might cut rates in the foreseeable future, it doesn’t mean these bond yields will follow suit,” Dugan explained.
The bond moves pose risks of elevated costs for future homeowners, despite what direction the Bank of Canada moves in next, and Dugan argued that the effect will be continued cost pressures sector-wide.