Wednesday’s increase and another possible hike in September will boost demand for rentals, force some landlords to sell and put a further damper on the construction of new rental and condo units.
The latest rate hike by the Bank of Canada is expected to have widespread ripple effects for renters and real estate investors, beyond its implications for homeowners with mortgages.
Already high interest rates and the potential for more increases will force more would-be homebuyers to postpone a real estate purchase and continue to rent instead, said Benjamin Tal, deputy chief economist at CIBC. “Most of those units will be off-loaded to end users,” Mr. Hildebrand said, meaning buyers who intend to live in the home instead of renting it out.
Average rents advertised by landlords on available units in Canada reached a high of $2,042 in June, up 7.5 per cent from the same month last year, according to a report by rental listings site Rentals.ca and Urbanation. That’s because a further rise in interest rates reduces incentives for developers to build new rental apartments and condos. The impact on construction companies is twofold, said Mr. Tal. On one hand, rising rates increase the financing cost of new projects. On the other hand, they depress demand for preconstruction condos from investors. .
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