As the real estate market continues to evolve in Canada, particularly in Ontario, numerous indicators suggest now might be an excellent time for investors to act. From economic factors like rising unemployment and interest rate trends to shifts in housing demand, everything points to a market poised for significant change. Below, we’ll explore seven factors on why investing in real estate, especially rental properties, can be wise in the current environment.
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The Inverted Yield Curve: A Warning Sign for Economic Shifts
An inverted yield curve, which occurs when short-term interest rates are higher than long-term rates, is historically a strong predictor of economic slowdowns or recessions. Currently, Canada is experiencing this inversion, signalling potential economic challenges ahead. Why is this important for real estate investors?
Typically, there’s a flight to safety during such periods, and real estate—particularly rental properties—becomes a haven for investors. When uncertain about the stock market or economic growth, people seek more stable, tangible investments like property. Rental demand tends to rise as homeownership becomes less attainable, making rental properties a lucrative option in the coming years.
What opportunities are out there for real estate investors? The posts below will give you a few ideas:
- A Complete Guide to Real Estate Investing in Guelph
- The Go Wylde Guide to House Flipping
- Five Best Cities in Ontario to Buy Recession-Proof Investment Properties
Interest Rates: A Path Toward Easing and Increasing Cash Flow
Canada’s interest rates, while still elevated compared to pre-pandemic levels, are projected to decrease over the next year. The Bank of Canada initiated three rate cuts in 2024, with more expected in late 2024 and 2025. For real estate investors, this creates a perfect storm. While higher interest rates have cooled the housing market, many properties are already cash-flowing at the current interest rate levels.
Investors who choose variable-rate mortgages now can benefit as interest rates drop over time, leading to increased cash flow* as borrowing costs decrease. This allows investors to secure properties at current prices and see growing returns as rates ease. Additionally, refinancing opportunities will open up, offering the potential for further savings and improved profitability in the coming years.
Current Housing Market: Surplus Creating Opportunities
Ontario’s real estate market, particularly in university towns and larger metropolitan areas, is currently experiencing a rise in inventory. This supply increase offers investors more choices and can lead to better deals. While housing prices have softened in many regions, particularly in cities like Hamilton, Oshawa, and Guelph, this creates opportunities for investors to purchase properties at more favorable prices.
The market conditions today are especially ripe for long-term investors. As sales slow and inventory grows, prices may temporarily flatten or decline. Savvy investors can take advantage of these lower prices before the next up cycle, positioning themselves for future solid gains when prices inevitably rebound.
The Rise of Renters: A Shift in Housing Demand
With higher interest rates over the past few years and tighter mortgage qualification standards, homeownership is increasingly out of reach for many Canadians. This is particularly true for first-time buyers who are being priced out of the market or deterred by financial uncertainty. Unemployment is rising to 7.0% in the second quarter of 2024, up from 6.4% earlier.
As economic conditions push more people into the rental market, demand for rental properties is climbing. In Guelph, for example, over 1,300 students are on the waitlist for on-campus housing, pushing more students into the local rental market. This type of demand ensures a steady stream of potential renters, and for investors, this translates into lower vacancy rates and higher rental income.
Doug Ford’s Reform of the Landlord-Tenant Board: A Potential Game-Changer
Another significant factor to consider is the potential Landlord and Tenant Board (LTB) reform under Premier Doug Ford’s government. Ford has acknowledged the current inefficiencies in the system, particularly the long delays in resolving landlord-tenant disputes, and has hinted at upcoming reforms that would streamline the eviction process. Proposed changes, such as the “2 Strikes and You’re Out” policy for rent arrears, could make the rental property market more attractive to investors by reducing the financial burden of non-paying tenants and making the system more efficient for landlords.
Ontario’s rental market could become more favourable for investors, offering better protection against tenant default and quicker resolution of disputes. If these reforms pass, some of the risks associated with owning rental properties will be reduced, and more people will be encouraged to enter the market as landlords.
Should you help your child become a student investor? Learn more about how to set them up for financial success in the posts below:
University Towns: Consistent Rental Demand
Investing in university towns like Guelph and Kingston remains a strong strategy for real estate investors. These towns face severe housing shortages as universities expand their enrollments beyond housing capacity. With international student caps potentially limiting foreign student numbers in cities like Waterloo, demand in places like Guelph will remain robust as students seek off-campus housing. This housing crunch in university towns is an excellent opportunity for investors to tap into a consistent stream of renters.
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Rising Unemployment: More Renters in the Market
Another trend fuelling rental demand is the rising unemployment rate, which hit 7.0% in mid-2024, up from 6.4% earlier in the year. As job security becomes more precarious, fewer people can buy homes, driving more Canadians to rent. Investors who acquire rental units now will benefit from a growing pool of potential tenants as people seek affordable housing options in an uncertain job market.
Conclusion: A Unique Window for Investors
All these factors—the inverted yield curve, expected interest rate cuts, rising inventory, increased rental demand, potential landlord-friendly reforms, and the consistent demand in university towns—create a unique and opportune moment for real estate investors. Those who invest in rental properties today can capitalize on both current market conditions and future trends, positioning themselves for long-term success. The next few years promise a shift in the housing market, and for investors ready to act, the time to seize these opportunities is now.
Are you ready to buy your first property or add to your portfolio? Our Guelph real estate agents work with investors at all levels. Reach out to info@gowylde.ca or call 519-826-7109 for more information.
