The Bank of Canada (BoC) interest rate hikes have led to greater demand for rental properties. This has caused already tight conditions in the rental market to become even tighter. Rent prices have grown by 21% year-over-year in Toronto and the GTA, according to TorontoRentals.com, and the average rental property could set you back $2,528 a month as of August. So as house prices have seen dips in the last couple of months, the question is : is now the right time to buy or rent?

The Driving Force of Rental Price Hikes

There are many factors driving rental prices, but the rise in interest rates is arguably one of the biggest contributors. While the BoC has increased interest rates in an effort to curb inflation, it has affected the real estate market. Home prices have dropped in many cities across the country following price peaks in February, but prices in some cities are still higher than they were last year. In Vaughan, the average price of a condo apartment was $698,933, a 3.1% increase year-over-year from $677,613. With interest rates and housing supply hitting record lows during the pandemic, home prices saw a rise throughout 2021 and into the early stages of 2022. The average benchmark price in the GTA was $1,334,544 in February of this year. As of last month, it was $1,086,782, a decline of 18.6%.

Inflation has caused a financial strain on Canadians and their home purchasing plans. In August, the annual inflation rate slowed to 7%. While down from June, the BoC has suggested that the rate of inflation must slow more.

The rise in demand for rentals is reflected in the housing market; in September of last year when interest rates were low, there were 9,046 sales across the GTA. This September, we were down to 5,038, a decline of 44%. With that higher cost of borrowing, some are considering rentals as a more financially sound option.

One Thing is For Sure – Rent Prices Will Keep on Rising

Interest rate hikes impact rental and housing markets differently. For rental units, interest rate hikes drive the prices up, whereas in the real estate market, it puts downward pressure on the cost of homes. The next interest rate announcement is scheduled for October, and experts are predicting that another rate increase will drive rental prices even higher.

The good news is, there are still many cities in Canada where buying may be a more cost-effective choice. In Edmonton, the average price of a condo is $220,013, which translates to approximately $954 a month in mortgage payments. Compared to the average monthly cost of rent at $1,181, Canadian buyers in Edmonton can save almost 20%. Winnipeg and Saskatoon represent similar stories, where the cost of buying is 12.33% and 11.39% less respectively than renting.

The east coast isn’t the only place where buying is a smart investment. Although the price to purchase a home is still more expensive in many cities in Ontario, interest rates are the driving factor in the higher monthly payments. But, interest rates will change and it’s worth determining how much you will spend on a rental long-term compared to the equity you will build when buying a home. For example, in London, Ontario, homebuyers can expect to pay about 6% more monthly in mortgage payments compared to rental prices. But in the next few years, if interest rates do eventually come down and rental prices continue to grow, buying would likely be the wiser financial decision. In Ottawa, buyers can secure a home for about 10% more a month. This works out to an extra $170 per month, which although not unsubstantial, it may end up being less than the amount growing rent prices will set you back monthly in the long run.

Rent is at an All-Time High, Is Now the Time to Buy? Canadian Rental Prices vs. Monthly Mortgage Payments by Daniel Crook | zoocasa