The Bank Of Canada Interest Rate Hike Could Affect Rent

Inflation around the world remains high and broadly based. This reflects the strength of the global recovery from the pandemic, a series of global supply disruptions, and elevated commodity prices, particularly for energy, which have been pushed up by Russia’s attack on Ukraine. The strength of the US dollar is adding to inflationary pressures in many countries. Tighter monetary policies aimed at controlling inflation are weighing on economic activity around the world. As economies slow and supply disruptions ease, global inflation is expected to come down.

In Canada, the economy continues to operate in excess demand and labor markets remain tight. The demand for goods and services is still running ahead of the economy’s ability to supply them, putting upward pressure on domestic inflation. Businesses continue to report widespread labor shortages, and, with the full reopening of the economy, strong demand has led to a sharp rise in the price of services.The Bank of Canada’s pursuit to control inflation through increasingin interest rates will continue to have a trickledown effect into the country's rental market.

In the past year, the average rent for all property types climbed to $2,043 as of September 2022, according to rentals.ca, an industry tracker. This is a 15.4 per cent climb compared to the same time last year. In Toronto, rent has increased to 20.4 per cent compared to this time last year.

The Bank of Canada's latest interest rate hike was an increase of half a percentage point, bringing it to 4.25%. This was the seventh hike made by the central bank this year.

The Bank of Canada’s aggressive interest rate hikes are not only a concern for economists and homeowners, as a recent survey shows the uncertainty of rising rates is driving Canadians’ financial anxiety to new highs.Average rent prices in Canada have also been climbing for several months before hitting a three-year peak last month, according to data compiled by Rentals.ca.

In its latest rent report, the average price of rent for Canadian properties was $1,888 per month in May 2022. Month-over-month, this is an increase of 3.7 per cent, the largest bump since May 2019. Properties include single-detached and semi-detached houses, townhouses, and apartments.Interest rates are making it very hard for new buyers to enter the market. Many of those people are going to be moving to the rental market, which is going to push rent prices up, unfortunately.

It's been a very challenging market for renters right now because there's just so much competition. Considering each of these factors, the experts now expect rent prices in Canada to continue to rise.When you see inflation rates like this, and you see interest rates going up, and you see such a lack of supply and demand growing, it's hard not to see rents continuing to go up. The rising interest rate is playing a key role in the increase in average rent prices across the country.

Contact Rajan Saggi, Senior Mortgage Consultant @ 604-767-5050 to discuss your options.

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