Canadian Rents Register 11th Straight Monthly Drop, Signalling a Shifting Market

For the eleventh consecutive month, Canada's rental market has provided a rare glimmer of relief for renters, with the national average asking rent experiencing another modest decline in May. This sustained downward trend signals a significant shift, hinting at a potential rebalancing in what has been an exceptionally tight and expensive market.

According to the latest data from Rentals.ca and Urbanation, the average asking rent for all residential property types across Canada fell by 0.9 per cent in May, settling at $1,972.

While this marks nearly a year of consecutive month-over-month declines, it’s important to note that rents are still substantially higher than a year ago, up 9.3 per cent year-over-year. This annual growth, though robust, represents a significant slowdown from the peak of 15.6 per cent observed in October 2023.

Digging deeper into the types of housing, purpose-built apartments saw their average asking rent drop by 0.9 per cent month-over-month to $1,984.

Condo apartments experienced an even steeper monthly decline of 1.4 per cent, bringing their average to $2,279. Annually, purpose-built units are up 10.3 per cent, while condo rents have climbed 6.8 per cent.

What's driving this remarkable streak of declines? Experts point to a confluence of factors.

A crucial element is the increasing supply of rental units, particularly purpose-built rentals, which are finally starting to make a dent in the housing shortage. Shaun Hildebrand, president of Urbanation, highlights this, stating that the market is beginning to find a "new equilibrium" as supply responds to demand.

Alongside this boost in supply, Canada's population growth has started to moderate.

Recent policy changes aimed at slowing the influx of international students and temporary residents are contributing to a less frenzied demand side. Benjamin Tal, deputy chief economist at CIBC Capital Markets, emphasizes the significant role of this slower population growth in cooling the rental market.

Additionally, the persistently high cost of homeownership continues to keep many aspiring homeowners in the rental pool for longer, though this demand is now being better met by the expanding supply.

The recent interest rate cut by the Bank of Canada, the first in four years, could also indirectly influence the rental market.

While directly impacting mortgage holders, a more stable economic outlook and potentially easing home prices could eventually lead to shifts in rental demand as well.

Regionally, the story is nuanced. Canada's traditionally most expensive cities are finally seeing some relief. Vancouver, for instance, experienced its third consecutive monthly drop, with average asking rent falling 0.6 per cent to $2,987.

Similarly, Toronto's average asking rent dipped 0.8 per cent month-over-month to $2,782. Other major Ontario markets like Kitchener, London, Windsor, Hamilton, Oshawa, St. Catharines, and Niagara also registered monthly declines, as did Victoria in British Columbia.

However, not all markets are cooling.

Several Western and Eastern Canadian cities continue to see rents climb. Calgary stands out with a 0.8 per cent monthly increase, reaching an average of $2,097, and remains the fastest-growing major market annually with a staggering 17.5 per cent year-over-year surge. Edmonton's rents rose 1.3 per cent to $1,496, while Montreal saw a 0.5 per cent increase to $2,040.

Cities like Saskatoon, Regina, Winnipeg, and Quebec City also recorded monthly upticks.

Doug Porter, chief economist at BMO, aptly summarizes the situation, noting the "significant cooling" in Canada's rental market, driven by a more balanced interplay of supply and demand. This ongoing trend suggests that while renters are still grappling with high costs, the relentless upward pressure experienced over the past few years may be easing, offering a more stable and potentially more affordable future for many Canadians.