Experts predict that the Bank of Canada’s decision to raise interest rates on Wednesday will exacerbate Canada’s already constrained rental market.
The Bank of Canada’s unexpected 25-basis-point increase has pushed the overnight lending rate to 4.75 percent and will indirectly increase accommodation costs, such as rent, as landlords seek to pass on higher costs to tenants, according to housing experts.
In an interview with BNN Bloomberg on Wednesday, John Pasalis, president of Realosophy Realty, predicted that the rental market would be most affected by today’s increase.
As the space becomes more crowded, Pasalis explained, those seeking to rent a condo right now or those displaced by the sale of an investment property are the most vulnerable in this environment.
“Today’s rate hike will have a psychological effect that will keep homebuyers on the sidelines while they wait for rates to fall,” he added. As a result, there will be increased competition for rental units.
While the Bank of Canada is not responsible for sky-high rents, these interest rate increases will make it more difficult to afford any form of housing, according to Pasalis.
In addition to increasing the cost burden on the rental market, the rate increases also reduce the housing supply, according to one real estate agent.
In an interview with BNN Bloomberg on Wednesday, Phil Soper, president and CEO of Royal LePage, stated that rising interest rates are preventing more properties from entering the market because people are delaying the sale or purchase of a home due to the uncertain interest rate environment.
Soper explained that while the increase was necessary to prevent further increases in property prices, there will be a negative short-term impact during the transition.
“What policymakers can do immediately to alleviate rental pressures is make it easier to divide existing properties and create sub-suites,” he added.
Frank Leo, a broker at Frank Leo & Associates, told BNN Bloomberg that having these types of options will be crucial for both landlords and tenants.
Leo stated that the rapid increase in interest rates has prevented landlords and tenants from preparing for the increase in housing costs.
In this scenario, he advises individuals to be as prepared as possible for what lies ahead.
“Many people are fearful because they know they’ll have to renew their mortgage at significantly higher rates or sell their investment properties if they can’t keep up with the costs,” he continued.
Leo stated, “It takes time to get things in order, and today’s interest rate decision indicates that we still have an inflation problem and that our troubles are not over.”
