BANK OF CANADA’S TIFF MACKLEM FORECASTS RENT DECREASES, BUT RISE IN HOME PRICES IS POSSIBLE
Bank of Canada Governor Tiff Macklem says rental prices could come down in Canada, but that does not mean home prices are going to drop.
Average monthly rental rates have already started to decline for studio condos across the country. And student housing landlords in university cities such as Kingston have reported a drop in demand after the federal government’s decision to slash the number of study permits available for foreign students.
“With mortgage rates coming down, hopefully with more supply coming into the rental market, with some reduction in population growth, you should see rent prices come down,” Mr. Macklem said at a news conference on Wednesday to discuss the central bank’s third consecutive interest-rate cut.
The interest-rate cuts will eventually help bring down mortgage costs for homeowners and landlords. As well, federal and local governments have been trying to spur the construction of more rental-only apartment buildings.
Shelter costs have kept the country’s inflation elevated because of the higher mortgage expenses and higher rent. But the latest inflation reading showed that shelter costs were not rising as quickly as before. (Shelter prices include the cost of renting and home ownership.)
At the news conference, Mr. Macklem said overall shelter price inflation could come down. But he made it clear that he was not saying home prices would fall.
“House prices could well actually pick up a bit with overall inflation in shelter price still coming down,” he said.
The typical home price across the country was $724,800 in July, which is 4-per-cent lower than last summer, according to the Canadian Real Estate Association. And a summer real estate rush did not occur, even after the Bank of Canada cut interest rates in June and July.
In August, it was more of the same. In the Vancouver region, sales fell 18 per cent from July to August and volume was 26 per cent below the 10-year average, according to the local real estate association, Greater Vancouver Realtors. The home price index, which extracts the highest priced transactions, was $1,195,900, which was a 0.1-per-cent decline from July and a 0.9-per-cent decrease from a year earlier.
The association’s economics director, Andrew Lis, said the low sales suggest that buyers are still feeling the pinch of higher borrowing costs despite the summer’s two interest-rate cuts.
Mortgages are still relatively expensive with the five-year fixed mortgages being marketed with an interest rate of about 4.5 per cent, according to mortgage comparison websites. Homeowners who have been renewing their mortgages over the past few years have been hit with a much higher mortgage rate.
Mr. Macklem acknowledged their pain. “When we increased our interest rates, it has had a very material impact on Canadians. They are feeling the squeeze of higher interest rates,” he said at the press conference. “Canadians are adjusting to that. Certainly some Canadians are finding it very difficult.” Though with interest rates on the decline, the mortgage renewal rates will not be as steep as previously thought.
In the Toronto region, the country’s largest real estate market, sales rose 0.6 per cent from July to August after adjusting for seasonal factors, though remained below historical averages, according to the real estate board. The home price index was $1,089,000 last month, which was the same as July and 5 per cent lower compared with a year earlier, according to the Toronto Regional Real Estate Board.
New listings fell for the second straight month but there remained an abundance of properties for sale in the Toronto region. In particular, the number of condos on the market in August was near a record high.
Story by: The Globe and Mail
