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Rising Home Prices & Low Inventory Have Resulted in A Hot Rental Market


Under Market Updates

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November 16th, 2021

Looming interest rate hikes have spurred sales and reduced inventory, heating up housing and rental markets on both sides of the border.

Zonda chief economist Ali Wolf outlined the latest economic and housing trends from the COVID-19 pandemic in a Nov. 11 webinar. She noted that buyers are expecting interest rate increases due to recent inflation data, which is pushing them toward buying sooner than later.

It’s a trend market watchers have also been noticing in Canada, with inventory levels low across the country and buyers anxious to get in ahead of higher rates.

“If I were a buyer right now I would be looking at some of the certainty of being able to lock in the rate where it is,” Wolf said.

Reduced inventory levels persist south of the border, with both new home and resale listings down 20% from a year ago – a number that mirrors the Canadian situation.

Wolf anticipates supply increasing after the winter: “I think there are a lot of sellers that are trying to be opportunistic and trying to time the market correctly, and think that entering next year during the spring selling season will be a really good time.”

Rising home prices and low inventory have also resulted in a hot rental market.

In the US, occupancies are at an all-time high, reaching 97% at the national level, above the 95% mark pre-pandemic. In addition, third quarter renewal rates are exceeding the 52% benchmark in almost all markets.

Zonda managing principal Kimberley Bynum says the rental market is the hottest she’s seen in more than 30 years. REITs are reflecting that shift, with AvalonBay Communities reporting that rental rates are now equal to or greater than 2019 levels in every region except Northern California.

Canada’s two largest markets have also seen their rental markets intensify, squeezing supply and hiking prices. According to Zonda Urban, Toronto rent prices increased six per cent from $3.27 per square foot (PSF) during the second quarter to $3.46 at the end of the third quarter, a $0.19 increase. In Vancouver, rents rose an average of $0.10 PSF during the third quarter, an increase of 3.1%.

Wolf attributed the numbers to two factors.

The first is a decrease in people moving out of rental communities to purchase. She cited a recent survey by Camden Property Trust indicating that move-outs to home purchases decreased from 17.7% during the second quarter to 15% in the third quarter, trending below the long-term average of around 18%.

The second factor strengthening the rental market is the renewal ratio. At the start of the pandemic, the second quarter of 2020 saw rental renewals hit all-time highs. Those numbers dipped during the following year before rebounding to record levels during the most recent quarter.

Wolf pointed out that renewals increased because people that wanted to move did so earlier in the year, while others decided to stay put due to either limited housing inventory or increased rent.

Pandemic Trends Reduce Housing Supply, Heat Up Rental Markets by Ryan Garner | Livabl

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