News: Canada will need more rate hikes to cool housing

In this week's Industry News (Week of 28 Feb 2022).

Canada will need more Bank of Canada rate hikes to cool housing frenzy, economists say | The Globe and Mail The Bank of Canada’s decision to raise interest rates on Wednesday is not expected to cool the country’s frenzied real estate market, with homebuyers still able to get cheap mortgages to compete for properties. Economists said it will take multiple interest rate increases – not just Wednesday’s 25-basis-point increase to 0.5 percent – before borrowing costs rise meaningfully. "I don’t think 25 basis points alone would have much of an impact on the housing market. It will take a series of rate increases to achieve that," said Jean-François Perrault, chief economist with Bank of Nova Scotia. Bank of Montreal chief economist Douglas Porter said it is unlikely that Wednesday’s rate hike will have any significant impact on a housing market with as much momentum as Canada’s. "I suspect rate hikes would really begin to bite when we get to 100 basis points," he said. Since the COVID-19 pandemic started, home prices have climbed at a record pace, with homebuyers looking for roomy properties in the suburbs and smaller cities where home prices are somewhat cheaper. Scotiabank’s chief economist Mr. Perrault said "it isn’t inconceivable that a first-rate hike might actually add to pressures in the market as homebuyers rush into buying ahead of even higher interest rates down the line." Frances Hinojosa, mortgage broker and president of Tribe Financial Group, agreed, saying Wednesday’s rate hike will likely have a "psychological impact" and "cause buyers to rush into the market." See full article here.

Rent prices are bouncing back, up almost 15% | Rentals.ca & Daily Hive After bottoming out early last year, Toronto rent prices are well on their way to recovery. A new report from Rentals.ca and Bullpen Research & Consulting found that rental prices in the city are now 14.5% higher than they were one year ago. This increase brought Toronto rent prices up to a $2,317 average in January — the second-highest in the country after Vancouver’s $2,550. Not all of Toronto saw prices shoot up across the board, though. Scarborough has actually seen a year-over-year decline in average rent prices, down 1.9% from January 2021 to an average of $1,848 per month. It’s one of just a handful of municipalities across the country to have seen a drop in rent prices. Renting a single-family home in Toronto will now run you $3,344 per month on average — an 8.8% increase year-over-year. Condo apartments have seen an even bigger jump of 13.6%, with a new average of $2,533 per month. Rental apartment prices are up 5.7% to $2,143.

See full article here.

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Shael Soberano, CFA Konfidis Inc. Chief Investment Officer

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