Fahd Mobada has never had a problem renting an apartment in Toronto until this year.
The 22-year-old engineering student at the University of Toronto and his roommate applied for nearly 10 two-bedroom rental properties in June, but despite good credit scores, savings and references, potential landlords chose candidates who put down offers hundreds of dollars above the asking price. .
“You have people coming in with that kind of money and you have no chance of competing with them. It’s really frustrating,” Mobada said. “They said ‘we’re not even going to look at the application because we just got an offer above the asking price, so we don’t even want to consider who you are.’ ”
Unfortunately for potential tenants like Mobada, the situation will not improve any time soon. Sky-high rental demand and costs are expected to continue to rise over the next six months, real estate experts say.
“Over the next six months, we’re going to see an absolute minimum of 15 percent increase,” said Simeon Papailias, a real estate broker at Royal LePage who specializes in real estate investments and co-founder of The Real Estate Center Canada. “There is an upward trajectory that will only get exponentially worse as each rate hike hits the market.”
To bring rising inflation back under control, the Bank of Canada has raised benchmark interest rates by 2.25 percentage points since March, an aggressive move that is expected to continue to cool the housing market, which is already on the decline amid rising interest rates. . As home prices fall, rapidly rising mortgage rates due to rising interest rates are making it harder for buyers to qualify for those mortgages, leading many to rethink their housing plans and rent instead.
Gus Papaioannou, a real estate agent at Realosophy Realty in Toronto, expects another jump in rents in late September.
“Prices could stabilize towards the end of the year, but in the short term, in the next 30 days, we will probably see a rise again based on the activity on the ground that we are seeing now, because there is so much pent-up demand and so little to choose from,” said Papaioannou.
The rental scarcity is the result of a combination of factors, including rising interest rates and a sharp decline in real estate, pushing more potential buyers to rent amid market uncertainty. As vacancy rates in the Toronto area plummet, rents are rising at the fastest rate in more than a decade, according to a July report from market research firm Urbanation. To put even more pressure on renters and homebuyers, developers are expected to delay construction of 10,000 new condominium units as pre-build sales plummet amid rate hikes.
When asked what it takes to balance rents, Papailias said, “We need a massive increase in supply in Ontario, and in the GTA specifically, a huge increase in real homes to come to market.” , adding that the supply should double.
“It’s a perfect storm of factors creating this incredible competition that we’re seeing right now,” said Andrew Harrild of Condos.ca.
“It’s not just interest rates that have pushed buyers into the rental market and caused rents to rise. People are also moving back to urban centers like they weren’t 18 months ago during the pandemic, so there’s a whole new branch of renters. ”
Buyers who haven’t been able to buy and enter the rental market have contributed to the increasing demand while supply is declining, said Lorry Greenspan, an agent with Forest Hill Real Estate.
“We’re not seeing the traditional cycle that we’re used to seeing, of tenants exiting the market and becoming buyers,” Greenspan said.
In addition to the lack of inventory, sellers, many of whom don’t get desirable offers, cancel real estate listings, leaving potential buyers with limited options, according to Anu Joshi, a Miracle Realty home realtor who works with several new buyers.
“Sellers are reluctant to put their homes on the market… and so we have a stock problem. Buyers don’t have much choice,” said Joshi. “It’s a meager selection out there. I am now working with a buyer who is looking for a two bedroom apartment. They have expanded their search and are getting literally two or three offers a week that make sense and fit their criteria.”
Due to the lack of options, buyers are waiting for the storm.
“A lot of buyers are waiting on the sidelines to see what’s going to happen in the coming months,” Harrild said. “Will prices adjust and by how much? How high will inflation be? When will we go back to some degree of normalcy? But nobody really has a crystal ball.”
Amid the uncertainty, Mobada has decided to extend his current lease for another year until he graduates. He and his roommate gave up on the search after making offers for rental properties above the asking price, but were still turned down.
“The hope is that once we graduate, we will have bigger incomes and be able to hit the prices that have been set now because it’s just not feasible at the moment,” Mobada said.
Greenspan, who has worked with Mobada and other clients to find rental properties, said even the most qualified candidates are turned down.
“Most worrisome is that many of these individuals come from privileged backgrounds and are privileged themselves,” Greenspan said.
“If these individuals struggle to find shelter, what does that say about those who don’t come from the same privileged background? That’s what I’m most afraid of.”
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