There will be ongoing affordability challenges for people after this rate hike: HomeEquity Bank CEO
The Bank of Canada’s decision to hike rates on Wednesday will put additional pressure on Canada’s already tight rental market, experts say.
The BoC’s surprise 25-basis-point hike has pushed the overnight lending rate to 4.75 per cent and will indirectly cause shelter costs, such as the price of rent, to rise as landlords look to pass off higher costs to tenants, housing experts warn.
“We’re going to see the biggest impact of today’s hike in the rental market,” John Pasalis, president of Realosophy Realty, told BNN Bloomberg in an interview on Wednesday.
Pasalis explained that people looking to rent a condo right now, or those who have been displaced by the sale of an investment property, are the most vulnerable in this environment as the space becomes more crowded.
“Today’s rate hike is going have a psychological effect that will keep homebuyers on the sidelines as they wait for rates to come down – meaning more people will now compete for a rental unit,” he added.
While the BoC isn’t responsible for sky-high rents, these interest rate hikes will make any type of housing affordability more challenging, Pasalis said.
In addition to putting more cost pressure on the rental market, the rate hikes also hinder housing supply, one realtor explained.
“These rising rates are acting as a blockage for more properties to come online as people hold off on selling or buying homes in an uncertain interest rate environment,” Phil Soper, president and chief executive officer of Royal LePage, told BNN Bloomberg in an interview on Wednesday.
Soper explained that while the hike was necessary to keep home prices from accelerating further, there is a negative short-term impact people must deal with amid the transition.
“What policymakers can do right now to ease rental pressures is make existing properties easier to divide and create sub-suites,” he added.
Having these kinds of options is going to be critical for both landlords and renters, broker Frank Leo of Frank Leo & Associates, told BNN Bloomberg.
“The speed at which interest rates have climbed has not allowed for landlords or renters to prepare for the heightened cost of housing,” Leo said.
In this scenario, he advises people to prepare as much as possible for what might lie ahead.
“A lot of people are scared right now because they know they’re going to have to renew their mortgage at significantly higher rates, or, sell their investment properties if they can’t find a way to keep up with the costs,” he added.
“It takes time to get things in order and today’s interest rate decision tells us we still have an inflation problem and our troubles aren’t over yet,” Leo said.