Canada's Housing Bubble

Jun 18, 2010 Steve Ladurantaye Globe and Mail

As interest rates rise, more people are selling their properties -- and diving into rentals, driving up rents as well

Bidding wars have moved from the bungalow to the two-bedroom rental apartment.

Many homeowners who cashed out at the peak of the market are putting their money in the bank rather than investing in a new house. And as a slew of new renters look for temporary homes, they are driving up prices and engaging in bidding wars to ensure they snap up properties that are comparable to the properties they left behind.

With the real estate market cooling and the cost of mortgages expected to climb, they are sitting on their cash and hoping prices will drop before they wade back into the world of home ownership.

“There is angst among buyers who would rather rent and wait a while before jumping back in,” said Cary Chapnick, president of Hive Realty Corp. in Toronto. “And then they get out there, and find that the good properties are receiving multiple offers. It’s quite a shift.”

In one recent deal, a downtown Toronto two-bedroom condominium rented for $2,250 a month – 122 per cent of the $1,850 its owner had expected. A three-bedroom house went for $2,700, 110 per cent of the $2,300 listing price.

While the sudden surge in price increases are easy to quantify in Toronto where the city’s real estate board keeps track of rentals on a daily basis through its Multiple Listing Service, agents in other cities such as Vancouver have to rely on anecdotes to track prices because the information isn’t compiled.

Diana Mander of Royal LePage Northshore has worked in Vancouver’s rental market since 1989, and said this summer has been among her busiest. Things are usually slowing down this time of year, but a flood of local inquiries has caught her off guard.

She’s more accustomed to dealing with families who are moving to Vancouver from other cities, not Vancouverites who are looking for high-end rental homes because they sold their own properties.

“The strength of the local market is really quite a surprise,” she said. “People are literally selling $3-million homes and opting to rent. It’s definitely putting pressure on supply.”

Canada Mortgage and Housing Corp. said this week that the national vacancy rate increased to 2.9 per cent in the last year, up from 2.7 per cent. But rents advanced 1.8 per cent, as landlords took advantage of tight supply in the country’s largest markets.

Toronto and Vancouver have been at the epicentre of the country’s real estate boom, with resale prices now at all-time highs. Their vacancy rates are also among the lowest in the country, at 2.2 and 2.7 per cent, respectively.

“As an agent I can tell you that it is incredibly frustrating to deal with prices that seem flexible at best,” said Mr. Chapnick. “You think you have a deal, you show up and they tell you someone will pay more. And there aren’t any regulations, really, so you’re stuck playing the game.”