The rental market comprises rentals of anything from apartments and town homes to condos and two-family houses. Tenants pay a monthly rent as opposed to homebuyers who pay a mortgage and own their own homes. Rental markets in various regions go through periods of flux on a regular basis, just like the real estate market does.
The rental market in Toronto, has been showing signs of weakening lately, according to The Globe and Mail. The Toronto condo market in particular is at a point of inflection, as evidenced by an increase in rental postings on sites like Craigslist. This increase grew to double the number of condo listings from late 2013 in comparison with late 2012. This could have serious implications for the marketplace.
What This Means for Toronto Condo Owners
Condo owners who got into the market as investors have been losing more than $200 each month, continues the Globe and Mail. This downturn could lead to a devastating blow to the Toronto rental market where it simply can’t absorb the supply as fast as it comes in, which in turn could result in lower rent prices and sky-high cash outflows for landlords who may just decide to sell.
This would happen slowly at first but could expedite quickly as landlords look to get out. It could also hurt small condo units that haven’t been able to sell anyway, further weakening their position. The declining market could then affect banks and private developers with unfinished units, leading them to absorb big losses.
The rental market is projected to decline over the next two years. Some remain confident in the state of the rental market, claiming that today’s young people simply can’t afford to buy their own homes and will turn to rentals in the interim.
High Rental Prices
Despite a projected weakening condo rental market, rent prices remain astronomically high. Real estate board numbers in the Greater Toronto Area reported that there were 6,541 condominium apartments rented in the third quarter of 2013. This number represents an increase of 25 percent compared with 2012’s third quarter.
With third quarter average rents on the rise for two-bedroom condo apartments by 3.6 percent each year, there has been competition between renters for available units, representing annual growth for units of this size.
Overall Picture of the Toronto Housing Market
This is all happening at a time when the population is booming — in fact, Toronto has increased its population by a million people over the last 10 years, putting a strain on housing in all sectors, driving demand and prices way up.
Between 2010 and 2012, the cost for a one-bedroom apartment rose at double the rate of inflation, which is usually one or two percent per year. Home prices remain on the rise as well, reaching an average of seven percent in Toronto, or $54,770 just last year. The end of 2013 brought an influx of 10,000 condos for lease, a huge increase from last year, but the vacancy rate is still very low–the lowest it’s been in a decade.
It looks like the rental market will take at least another two years to straighten out.
Clayton Holmes is a freelance writer based in the greater metropolitan area of Toronto. Clayton is a self-professed real estate buff, and lately he’s taken a particular interest in Corporate Housing in the Toronto region; he recommends that others with a passion for real estate check into such housing.