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Rentals Market Opposite of Real Estate
April 2010
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| Craig Alexander, Senior Vice President and Deputy Cheif Economist at TD Bank Financial Group |
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By Hayley Mitchell
TD Bank Financial Group’s Senior Vice President and Deputy Chief Economist, Craig Alexander, says that “traditionally, the rental market follows the opposite cycle to real estate.” Strong real estate conditions due to low interest rates, such as what we have seen in Toronto and Canada’s other large cities at the end of 2009 and start of 2010, have allowed renters to become buyers, potentially taking them out of the rental market, thus creating more vacancies. This is especially true for younger, first-time home buyers, who have been able to leave the rental apartment market in favor of condo buying.
Alexander predicts that by end of 2010 interest rates will be up at least 1 percent, starting to rise in July of this year. The result will be a slower real estate market, with a weakened demand for homes. “We think that by the end of the year we will probably see homes sales down about 10 percent and the rate of home appreciation will be slowing down because of weaker demand,” he says. With less people buying, the rental market will be looking a bit better, with lower vacancy rates due to longer tenant retention and less tenant turnover.
In addition to the response to the real estate market, Alexander says that another factor that continues to affect the rental market in Canada is our immigration rate. Citizenship and Immigration Canada’s Sept. 2009 report on immigration notes that nearly 250,000 new residents moved to Canada in 2008; a similar number is expected for the 2009 results and this rate is expected to maintain stable through 2010 and 2011. With a steady influx of new residents to drive the rental market, Alexander says that the outlook for the next year in the rental apartment market will be “not booming, or really strong conditions, but also not weak. I think it’s going to be relatively average for the industry.”
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