Canadian real estate investors expecting lower rates aren’t the only ones who got good news yesterday. Statistics Canada (Stat Can) data shows the rent component of the Consumer Price Index (CPI) slowed sharply in April. In a research note to investors, BMO explained the monthly move wasn’t the only data point to indicate a slowdown on the horizon—moderating population growth and an injection of new supply are also seen helping slow rents even further.
Canadian Rents Are Finally Starting To Slow Down
Canada has finally seen rents begin to slow after one of the biggest booms ever. The rent subcomponent of CPI advanced 0.5% in April, with prices now 8.2% higher than last year. It’s not anywhere near falling, but it’s a start.
“Canadian renters can breathe a sigh of relief as it looks like one of the biggest drivers of inflation is stabilizing,” said economist Shelly Kaushik at BMO.
Adding, “Though rent inflation is still above 8% y/y as of April, it has steadied from a clear uptrend since immigration returned in 2021 (and both ramped up in subsequent years).”
Canadian Rental Prices Just Off Highest Growth Rate Since The 80s
Growth didn’t move much but there are a few data points the bank is considering. Annual growth only fell 0.3 points from March, when it had reached the highest level since the mid-80s. While one month isn’t a trend, Kaushik’s data shows the 6-month annualized growth rate trimmed 2 points over the period and is just above the 12-month trend. If it plunges below in the May data, that’s the first sign the short-term pressure has been released, leading to deceleration.
The purely quantitative data point is joined by a moderating population and a supply boost. “There are a few more reasons for optimism ahead. Population growth is expected to slow to a more manageable pace starting around the end of this year, keeping a cap on demand. Plus, supply looks to ramp up as the record-high rate of construction comes to fruition in the medium term,” explains Kaushik.
She also believes this translates into good news on the inflation front. The central bank has mentioned several times that shelter costs are an inflationary concern. While still lofty, the rapid deceleration will certainly help to moderate general inflation.
Greater Toronto real estate generally leads the national trend and it has recently seen its rental market suddenly cool. Rental vacancies in the region are now significantly higher than pre-pandemic, with rents already off the peak.
