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High Housing Starts Indication of More Competition for Landlords

21 August 2013

There’s an interesting trend happening around the country. Mortgage rules have tightened significantly within the past five years; and recently CMHC announced new rules to lenders that will also have their own impact. But instead of a major softening or correction, housing starts trended at 187,416 units last month; and those were only down a very small fraction from June. With all those units on the market, and fewer buyers and homeowners being approved for mortgages, the burden will fall on landlords struggling to compete with a number of available units.

“The trend in total housing starts continued to be relatively stable in July, remaining within a narrow range since March 2013,” Mathieu Laberge, deputy chief economist at CMHC, stated. “For the past few months, total housing starts have followed the stabilizing trend observed in sales of existing homes earlier this year.”

The fact that most of those units involve condominiums and town homes will only put added pressure on landlords, who are looking for those very units to rent out and start generating income. While analysts have stated that they’re comfortable with how market conditions will develop for investors within the next few years, they’ve also stated that rental prices will most likely need to drop slightly.

“I think the fact that developers haven’t significantly slowed their building despite the mortgage rules being clamped down on suggests that we will continue to see a rise in rental inventory and more competition against landlords,” says Lila Grande, an Ottawa landlord that has 40 days in their portfolio.

What may be even more worrisome for landlords might be the fact that this trend is occurring even in what were just a short time ago, considered to be the weakest markets in Canada. British Columbia, one of those areas, also continued to see July’s seasonally adjusted annual rate of urban starts increase.

Mortgage rates may not be so much of a concern to investors and landlords, and they’ll feel little effect from the newest CMHC rules. However, because all of those factors will continue to put pressure on homeowners and home buyers, and even leave some out of the market, there’s lots of inventory for investors to play with; and that might mean not playing as nicely with each other.

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