Canadian Rental Prices Hit Record High Amid Robust Population Growth

Canada's rental market is experiencing significant growth, with average rent prices reaching a record high in June 2023. This rise can be attributed to strong population growth and continued demand outstripping new supply. The average asking price for a rental unit in Canada hit an impressive $2,042 in June, surpassing the previous record of $2,024 set in November 2022, according to the latest data from Rental.ca.

To understand the "average" rental amount, one should note that this figure is calculated by adding the rates for an apartment, condominium, and house or townhouse, and then dividing by three. The surge represents a year-over-year increase of 7.5%.

Taking a closer look at the data, in London, Ontario, the average monthly rent for June came in at $1,983, marking an average year-over-year increase of 7.8%. A breakdown of the increases is as follows:

- Bachelor: $1,456, up by 22.0%

- 1 Bedroom: $1,762, up by 8.7%

- 2 Bedroom: $2,093, up by 6.7%

- 3 Bedroom: $2,639, up by 7.4%

As we move through the peak rental period of the year, we can expect further upward pressure on rents, especially as demand continues to significantly outpace new supply. This trend is driven partly by Canada's record-high population growth. In 2022, Canada's population grew by over a million people, and projections for 2023 estimate a population increase of as much as 1.5 million people.

Canada's Inflation Numbers: A Closer Look

On July 18th, Ottawa announced Canada's latest Consumer Price Index (CPI) or inflation numbers, which dropped to a 27-month low of 2.8%. This decrease primarily stems from the lower cost of energy, even as the cost of food and shelter continued to increase despite the Bank of Canada's 10 interest rate hikes in less than 18 months.

Excluding food and energy, prices rose 3.5% compared to a 4.0% gain in May. Grocery prices, in particular, saw a year-over-year rise of 9.1% in June, slightly higher than the increase in May.

With June's inflation standing at 2.8%, it falls within the Bank of Canada's target range of 1-3% for the first time in over two years. This occurred following the Bank of Canada raising interest rates to a 22-year high of 5.0% in their July announcement. There are signs of further rate hikes if inflation continues to exceed its target.

The Bank of Canada projects inflation to hover around 3% in the next year before falling to its 2% target by mid-2025, six months later than their previous prediction. The next overnight rate announcement is slated for September 6th, 2023, at which point rates are expected to remain the same unless inflation shows an upward trend.

Forecast for Housing Prices

Housing prices are predicted to remain flat in the short term, with a rapid increase anticipated once rates begin to drop. Experts foresee a decrease in the overnight rate occurring in early to mid-2024. The convergence of these factors presents an interesting and dynamic landscape for Canada's rental and housing market in the months ahead.

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