How the Recent GTA Real Estate Market Changes Have Impacted Rentals
Tags: TAG: GTA RENTAL MARKET, TORONTO REAL ESTATE, VAUGHAN REAL ESTATE, REAL ESTATE INVESTING, MARKET CRASH
The rental market in the GTA literally collapsed during the pandemic. After many years of a huge demand for rentals, the market dramatically shifted during the pandemic in favour of tenants. Many tenants decided to move during this time as the shift in the market gave tenants an opportunity to rent a better property at much lower rental rates.
This happened because many renters left the downtown city cores as they no longer needed to live near their place of work. As a result, rental vacancies flooded the market. In addition, the prohibition of short-term rentals resulted in these properties being transitioned to long-term rentals – resulting in a flood of rental units available.
Now that employees are returning to work the demand for rentals has dramatically increased in the last 6 months. In addition, students are looking for rentals and foreign students are returning to the GTA. Added to the fact that the interest rates have caused buyers to slow down their search for that dream property to purchase. Many buyers are sitting on the sidelines waiting to see the impact of increased interest rates on the housing market. So these buyers are also looking to rent.
All these factors have resulted in a huge spike in demand for rentals and as a result, the average rental costs have gone through the roof. We are now experiencing bidding wars for rentals. It is quite challenging for renters to find a rental unit in our current market.
Increase Rental Demand Impact on Rent
The huge spike in demand for rentals has resulted in rents surpassing the previous rent peak of Q3 2019. Available rental units for rent dropped in Q2 2022 by 11.4%. The dip in rentals was not a result of a drop in demand but a drop in the number of units available to rent – a 30% drop year over year. With fewer properties available to rent it has become much more challenging for renters to find a unit to rent.
In the Greater Toronto Area (GTA) the average condo rent for a one-bedrom condo increased by 20.2% year over year to $2,269. Renters are now competing for rental units which continues to place upward pressure on rents.
Here is a look at the GTA municipalities with the highest percentage rent gains in the month of May (and the trend has continued):
• Burlington - +18.3%
• Etobicoke - +17%
• Mississauga - +12.9%
• Oshawa - +12.4%
• York - +12.2%
• Oakville - +11.2%
• Pickering - +10.5%
• North York - +10.2%
• East York - +8%
• Brampton - +4.4%
• Markham - +3%
• Scarborough - +2.5%
We have definitely experienced the end of the pandemic rent discounts. Now that we have opened up and the lockdowns of COVID appear to be behind us the rental market has bounced back quite quickly.
So what happened?There are many variables why the rental market has bounced back so quickly but the main factor is that we have in the last 4 months a decline in available rental units. Demand throughout the GTA has spiked not only in the City of Toronto. So what are the factors impacting the demand side: immigration, people returning to the city, foreign students returning to the GTA in droves, with the increase in interest rates has slowed down first-time buyers buying and delaying their purchase of a property. Many buyers are sitting on the sideline waiting to see the impact on housing prices of the increased interest rates.
We are now experiencing aggressive competition in the rental market similar to what we experienced in the past two years in the home-buying process. There doesn’t appear to be any indication that we will experience a slow down in the rental market any time soon.
The uncertainty in the housing market and delays in new housing supply due to developers’ supply chain delays and labour shortages will continue to result in pressure on rents.
The current market is very challenging for those that have or need to rent.
Great Opportunity for BuyersThe real estate market has definitely slowed down and we have experienced price drops since the peak in February 2022. Now buyers can for the most part negotiate a price below asking and include conditions to protect their investments. Bidding wars are still happening on unique properties that are well priced but they have dramatically dropped. There are great investment opportunities currently and rents are going up. Now is a great time to get active in looking for a property to purchase.
The price decreases are starting to stabilize. I caution buyers that are waiting to see if the market will “crash”. Trying to time the market can be dangerous as by the time buyers realize that the market is not crashing it will be too late. The media is scaring buyers by sharing that sellers are overextended and will need to sell. I do not believe this is the case as the stress test has somewhat sheltered buyers to ensure they can still carry their homes if interest rates increase the only buyers impacted by increased interest rates are those that have a variable rate mortgage those that are locked in their rate are protected and interest rate increase will not impact them.
The aggressive price drops to date are due to buyers buying and then having to sell during a shifting market. These sellers needed to sell otherwise they would have to carry two homes – hence the aggressive price drops in the last 4 months. From February 2022 to July 2022 average sales prices dropped 20%. In the last 2 months listing activity has slowed down.
As I mentioned earlier the economic fundamentals do not point to a real estate market crash. If buyers sit on the sidelines for too long they may very quickly realize that the market has bounced back and possibly get further priced out of the market. I have seen this in 2017/2018 when many buyers informed me that they would wait for the market to crash and by the time they realized that the market wasn’t crashing they were priced out of the market.
My advice is to buy what you can manage and continue to save and build equity rather than paying a landlord’s mortgage.
My projection is that the market will continue to remain slow through the summer but more so as families may prioritize family vacations after the last two years of restrictions rather than spending the summer months looking for a home. Once fall comes around I project that the market will start to pick up again.
If you are a first-time buyer or an investor it is a good time to get more active in looking for that perfect perfect property. Make sure that you are pre-approved and that your mortgage broker or financial institution has locked down the interest rate for 90 – 120 days and that you have a comfort level on what your budget is and what you can afford.
Buy and sell your home or recreational property with Sylvia Smith. She specializes in residential and recreational real estate within the Greater Toronto Area, Parry Sound, and Muskoka. Whether you are a first-time buyer, an investor or you are looking for a cottage property, Sylvia Smith provides a seamless experience and is committed to making your real estate dreams come true. Combining her passion for real estate, and a tenacity for protecting client interests and providing integrity and client service sets her apart. Reach out if you have any questions or are thinking of renting, buying or selling.