Overview: A Shift in Canada's Rental Landscape
In a surprising turn of events, Canada's rental market has witnessed its first annual decline in asking rents since the pandemic began. The latest Rentals.ca Rent Report reveals a 1.2% drop in average rents across the country, marking a significant shift from the previous upward trajectory. As major cities like Toronto and Vancouver experience notable decreases, some smaller markets continue to see rent hikes. Let's break down the details and explore what this means for real estate agents and mortgage brokers navigating this changing landscape.
Rents in Canada Decline for the First Time Since COVID
According to the November 2024 Rentals.ca Rent Report, the average asking rent for all residential property types in Canada reached $2,152 in October, reflecting a 1.2% decrease compared to the previous year. This marks the first year-over-year decline in rents since July 2021, highlighting a significant turnaround in the rental market dynamics.
The decline was particularly pronounced in major urban centres within Ontario and British Columbia, as well as Calgary and Montreal. Meanwhile, many smaller and more affordable markets across the nation continued to show robust rent increases in October, painting a mixed picture of the rental landscape.
After a steady growth period, rent increases have been tapering off since the summer, with this latest decline starkly contrasting the 9.3% annual increase recorded in May. Month-over-month, average asking rents dipped by 1.9% in October alone, equating to a total reduction of $49 per month since July.
Condo Rents Experience Notable Drops
Focusing on purpose-built and condominium apartments, the average asking rent saw a minor 0.5% year-over-year increase, settling at $2,122. Purpose-built apartments enjoyed a 1.7% annual growth, reaching an average of $2,100, but this was offset by a 3.8% annual decline in condo rents, which now average $2,265.
Interestingly, purpose-built studio rents soared by 7.4%, bringing the average to $1,622, while three-bedroom rents increased by 7.5% to $2,673. Conversely, one-bedroom purpose-built rents slipped slightly by 0.1% to $1,903, and two-bedroom rents inched up by 1.0% to $2,292.
Condo rents, particularly for studios, faced the most significant annual declines, down 6.9% to an average of $1,874. One-bedroom condos also experienced a decline of 3.3% to $2,057, and two-bedroom units saw a drop of 4.0% to $2,386. However, three-bedroom condos, which remain in shorter supply, reported a 2.8% increase in rents to an average of $2,889.
Provincial Trends in Rent Declines
The rental declines in October were most prominent in Canada’s two costliest provinces. In British Columbia, average rents fell by 3.4% to $2,549, while Ontario experienced a 5.7% decrease, resulting in average rents of $2,350. In contrast, Quebec saw a minor decline of 0.5%, with average rents now at $1,966. The other provinces continued to show annual growth in rents.
Saskatchewan stood out with a remarkable 17.1% annual increase in apartment rents, although this was slightly less than the previous month's growth of 23.5%. The average apartment rent in Saskatchewan is now $1,358, still significantly lower than the national average.
Nova Scotia followed closely, recording a 9.6% increase, bringing the average rent in the province to $2,298. Meanwhile, Alberta and Manitoba's rent increases moderated to 6.0% and 5.6%, respectively, with Alberta averaging $1,786 and Manitoba $1,594.
When it comes to unit types, B.C. saw the largest decline for one-bedroom units, dropping by 4.9% to an average of $2,254. In Ontario, two-bedroom apartments reported the most significant decrease at 6.9%, now averaging $2,583. Quebec's declines were most notable for one-bedroom apartments, which fell by 3.2% to $1,681.
Major City Insights: Rents on the Downturn
Among Canada’s largest markets, Toronto recorded the most significant annual decline in asking rents, with a staggering drop of 9.2% to an average of $2,642. This is coupled with a huge number of vacant, units for sale in the city.
Vancouver followed closely behind, with an 8.4% decline to $2,945. In Calgary, rents fell by 4.7% to an average of $1,995, while Montreal saw a decrease of 2.9% to $1,987. Notably, Ottawa managed a slight annual increase of 0.4% to $2,207, while Edmonton continued to thrive with an impressive annual rent increase of 8.4%, averaging $1,584.
In terms of recent trends, Calgary and Vancouver saw the most considerable three-month rent declines, at 5.5% and 5.0%, respectively. Vancouver faced the steepest declines in apartment rents across the board, with studios experiencing a whopping 12.8% drop, one-bedrooms down 10.0%, and two-bedrooms down 9.9%. Toronto also faced significant decreases, particularly in two-bedroom apartments (-9.3%), while Calgary saw similar trends.
Emerging Affordable Markets
Despite being the focal point of rental declines, B.C. and Ontario still house the most expensive mid-sized cities in the country. North Vancouver tops the list at an average of $3,141, followed by Coquitlam, Richmond, and Burnaby, all hovering above the $2,700 mark. Ontario cities like Mississauga and Oakville are also featured prominently among the top ten.
On the other hand, Alberta boasts several affordable markets, with Lloydminster leading the charge at just $1,176. Other affordable cities include Fort McMurray, Grande Prairie, Red Deer, Medicine Hat, and Lethbridge, all offering lower-than-average rents. Windsor and Abbotsford stand out as the most affordable options in Ontario and B.C., with average rents of $1,623 and $1,877, respectively.
In a fascinating twist, several smaller cities reported double-digit annual rent growth, with Lloydminster leading at a remarkable 24.3%. Pointe-Claire, Saskatoon, Lethbridge, and Gatineau followed, demonstrating that there are still vibrant rental markets even amid the broader decline.
The Rise of Shared Accommodation Rentals
As traditional rental options face uncertainty, shared accommodations have seen a significant rise in both popularity and availability. Listings increased by 12% month-over-month and a whopping 58% year-over-year, providing landlords and tenants with more flexible and affordable options in markets that often lack conventional rentals.
In October, shared room rentals surged, particularly in single-family homes, and rents continued to rise across the four provinces monitored. In Quebec, shared accommodation rents rose by 5.3% to $910, while Alberta saw a 3.9% increase to $904. British Columbia's shared accommodation rents climbed 2.5% to $1,205, and Ontario saw a modest 1.2% increase to $1,081.
Across major cities, shared accommodation rents experienced varied trends. Edmonton led with a 7.3% annual increase, averaging $791, while Toronto and Ottawa saw slight declines. Vancouver maintained its position as the priciest city for shared accommodations, averaging $1,490 with a 2.4% annual increase.
Potential Impact on the Real Estate Market
The decline in rental prices presents a unique opportunity for real estate agents and mortgage brokers. As affordability becomes a central concern for renters, prospective buyers may find themselves reconsidering home ownership, potentially driving interest in entry-level housing. Lower rental prices can lead to reduced competition for rental properties, allowing for a more favorable negotiation environment for buyers seeking to transition from renting to owning.
Additionally, the shift in the rental landscape could influence investors' strategies. With a downturn in rental prices, some may reconsider their investment portfolios, focusing more on markets showing consistent growth or stability. This may lead to increased interest in smaller markets or emerging areas that continue to demonstrate strong rent growth, as noted in Saskatchewan and Nova Scotia.
Mortgage Rule Changes: More Flexibility and Accessibility
The recent mortgage rule changes announced by Deputy Prime Minister Chrystia Freeland are designed to make homeownership more accessible and provide greater flexibility, which could have a significant impact on both the rental and housing markets.
Increased Price Cap for Insured Mortgages
The government has increased the price cap for insured mortgages, allowing first-time homebuyers to purchase properties up to $1.5 million with less than a 20% down payment, up from the previous $1 million limit. This change is particularly important in high-cost markets like Toronto and Vancouver, where average home prices frequently exceed $1 million. The ability to access insured mortgages for higher-priced homes will open the door to more buyers, especially in areas where affordability has traditionally been a barrier.
Extended Amortization for First-Time Buyers and New Builds
Another significant change is the extended amortization period for first-time homebuyers and those purchasing newly built homes. With the option to stretch their mortgage term to 30 years, buyers can now reduce their monthly payments, making homeownership more financially feasible. This change is expected to stimulate demand, particularly for newly built homes and developments, as potential buyers seek to take advantage of lower monthly costs.
Secondary Suite-Friendly Financing
The new rules also include provisions that make it easier for homeowners to refinance and add secondary suites, such as basement apartments or laneway homes, through insured refinancing. This move is designed to unlock more affordable housing options in urban areas where supply shortages are a concern. With these new financing options, homeowners can create additional rental income by converting their properties, potentially helping to alleviate the pressure on the rental market and providing more affordable housing alternatives in high-demand areas.
While these changes are meant to stimulate the housing market overall, it will be interesting to see how it impacts the current rental landscape when put into law in 2025. On one end, secondary suite financing could help produce more affordable rental units. On the other hand, you have to ask, will the rental asking prices be high enough to justify the initial investment.
Ontario Market Impact
In Ontario, the significant declines in rental prices, especially in major cities like Toronto, may prompt a recalibration among home buyers and investors. With the province seeing a 5.7% drop in average rents, many may view this as a signal to explore home buying options previously considered out of reach. This shift could stimulate demand in the housing market, particularly in suburban areas where buyers might seek more space at a lower cost.
Moreover, as renters explore shared accommodation and alternative housing options, the focus on multi-family dwellings may grow, offering new opportunities for real estate agents to connect clients with properties that fit their evolving needs. Agents should be prepared to provide valuable insights and resources to clients navigating this changing landscape.
Alberta Market Impact
Similarly, Alberta's rental market dynamics could shift with the 6.0% increase in average rents contrasting with declines in neighboring provinces. The province's rental growth, coupled with the recent downturn in major urban centres, could position Alberta as an attractive market for both renters and investors looking for stable returns.
As rental prices in Alberta remain competitive, potential buyers might find themselves drawn to the market, viewing it as an opportunity to invest in properties that can provide immediate rental income. Real estate professionals should focus on showcasing the benefits of Alberta's affordability and growth potential, ensuring that clients understand the advantages of investing in this resilient market.
What's Next?
Canada's rental market is seeing its first decline in rents since the pandemic, especially in cities like Toronto, Vancouver, and Calgary, while smaller markets continue to grow. This shift presents new opportunities for real estate professionals, as more renters may look to buy in response to lower rents.
Recent mortgage rule changes, including higher price caps and extended amortization for first-time buyers, will further boost demand, making homeownership more accessible. For real estate agents and mortgage brokers, these changes create new avenues to assist clients and navigate an evolving market.
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