Rents in major Canadian cities appear to be falling fast and this risks housing prices, the new said report by Capital Economics.
Capital said a report from Rentals.ca showed that rents for two-bedroom units fell 8% in Toronto, 9% in Ottawa and 16% in Vancouver in April. It’s skeptical of the size of the decline, but another rental site Padmapper.com also shows the average rental price is falling.
One thing that is certain is that fewer people come to town. Immigration has stopped and stopped in tourism having short-term rental owners who switch to the long-term rental market instead.
Toronto and Vancouver, which received the most recent arrivals and had the highest number of short-term leases, faced the worst declines, Capital said. Toronto usually gets an average of 12,000 new residents a month; the absence of that arrival could make at least 3,000 vacant apartments.
Capital expects Toronto’s vacancy rate to jump to 4.5% from 1.5% in July and rise higher at the end of the summer if some students fail to return.
Rental prices are usually associated with a vacancy rate, Capital said and calculated that a 4.5% vacancy rate for Toronto could translate to “a 15% reduction in rent.”
“That is a big risk to house prices,” said Capital economist Stephen Brown. “Many investors have recently been reported to have faced negative cash flow because rents are too low to cover all their expenses. With rental prices going down, some might sell property, which could cause a fall in house prices of more than 5% that we have entered. “
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Retail sales data comes out tomorrow, but a real-time look at how Canadians spend their money has revealed several green shoots amid all this gloom.
Canadians still spend far less than before the pandemic, almost 30% less in April, according to RBC Economy, COVID-19 Consumer Buyer Tracking, but discretionary spending seems to be stabilizing.
The RBC expense tracker uses a bank-owned database of anonymous card transactions to compare weekly spending during a pandemic with an average of the first 11 weeks of 2020 before official social distance measures.
While spending fell by almost 30% overall in April, there was a sharp increase in the middle of the month that brought rates to around 15% below pre-pandemic levels at the end.
Spending on trips fell by around 90% in April, but automotive spending on things like maintenance and gas increased at the end of the month.
Restaurants and entertainment have continued to decline by 50% since before the crisis, but food ingredients, which jumped almost 60% higher in the last two weeks of March, have risen to around 20% higher than pre-pandemic levels.
Encouragingly, spending on household goods, which declined by almost 20% at the beginning of the month, is now around 20% higher than pre-pandemic levels. Spending in department stores and electronics is also higher than before the crisis. And spending on software and data has jumped from the end of March to almost 80% higher than before the crisis.
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‘Transition BACK TO EXTENSION’ The White House stands behind a fence in Washington, D.C., because the US capital and surrounding suburbs remain largely closed to coronaviruses. On Wednesday, President Donald Trump said he might try to meet face-to-face with other G7 leaders at Camp David for the June summit after previously canceling a physical meeting. “I’m considering rescheduling the G-7, on the same or similar date, in Washington, D.C., at the legendary Camp David,” Trump tweeted. “Other members also started their COMEBACK. That would be a good sign for all – normalization! ” Andrew Harrer / Bloomberg
- US Federal Reserve Chair Jerome Powell to give the opening speech and Federal Reserve Board Governor Lael Brainard will moderate the panel on how the COVID-19 pandemic has changed perspectives on the labor market, inflation and monetary policy transmission to households and businesses before the online event, “Fed Listens: How does COVID-19 Affect your Community? “.
- Today’s data: StatsCan’s monthly EI report, Canada’s new housing price index, US initial jobless claims, existing US home sales
- Important income: Lightspeed POS, Western Energy Services Corp., Nvidia Corp, Hewlett Packard Enterprise Co.
This is the first time since the Great Recession, negative inflation. Canadian CPI decreased by 0.2% in April from the previous year when the pandemic closed the economy. That’s down from an annual rate of 0.9 percent in March and 2.2 percent in February. Core inflation, which filters volatile prices such as energy, is holding up better, at 1.8%, as shown by the Oxford Economy chart below.
Gas prices, which fell nearly 40% from a year ago, were the biggest drag on the CPI, followed by tourist accommodation, down 9.8% and men’s clothing, down 7.4%. The biggest income was car insurance, up 7.7%, and meat prices, up 6.7%.
Inflation also fell in eight out of 10 provinces, with the sharpest decline in oil provinces. In Ontario, electricity prices fell 12.6% due to the suspension of peak levels and helped push the province’s inflation to -0.1%.
Oxford expects inflation to remain in negative territory in the near future while the economy recovers slowly. “However, the risk of prolonged deflation is significant, especially if there is a second wave of large viruses and widespread reintroduction of lockdowns,” said fellow economist Michael Davenport.
Looking for good reading. Take a look at the Financial Post’s latest personal finance column, Spent, where Victor Ferreira looks with amusement and insight into the daily financial life of every Canadian millennium. This week: A millennial saves her CERB check in the hope of finally getting her own place. Read here
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