Several factors contributing to more favourable conditions
Calgary’s rental market is emerging as an early winner this year as the result of improved vacancy rates, added inventory and a more conservative appetite among buyers in the resale housing sector.
CREB®’s mid-year forecast update, released earlier this week, notes more choice and less upward pressure on rents has, and will continue to, impact the resale market as more consumers choose to keep renting.
An April report from the Canadian Mortgage and Housing Corp. (CMHC) showed two-bedroom apartment and row vacancy rates rose to 3.6 per cent in 2015 – the highest level since 2010 – from 1.5 per cent the year prior.
CREB® attributed to rosier rental picture to an increased in the number of purpose-built rentals and ongoing uncertainty in the oil patch, which is attracting fewer migrants to the province.
“More options for renters with less concern over rental hikes may cause some to delay the purchase of their first home,” it said.
It adds, “while rental rates have improved due to the lack of supply in last year’s market, improved choice in rental property will likely limit any additional rental gains over the near term.”
ATB Financial chief economist Todd Hirsch cautions investors to be realistic in their expectations over the short term – even though more aggressive housing prices and favourable interest rates might indicate otherwise.
“Those with deeper pockets and a longer time horizon are more likely to do that than ones with very short timelines or shallow pockets, because I think this downturn will linger for a little while,” said Hirsch.
“I don’t think it’ll be the worst Alberta’s ever seen, but I don’t expect a quick snap-back like you saw in 2009. That means real estate investors will need to have a little stronger intestinal fortitude and patience before they see a lot of their return.”
Hirsch doesn’t believe favourable interest rates are unlikely to significantly impact the rental market moving forward. Earlier this month, the Bank of Canada cut its key lending rate for the second time this year to 0.50 per cent.
“We saw the Bank of Canada cut interest rates, and that has started to trickle into lower mortgage costs, which could bump a few more people toward home ownership,” said Hirsch. “Most of the banks seem to be cutting 10 basis points, which isn’t much. So it won’t be a whole lot more people.
“Working in favour of the rental market, you have an economy that’s shaky right now. Even though mortgage rates are good, I think some people will hold back.”