Consumer Price Index: It's a renter's market

While a 4.2% increase in food and 6.5% rise in energy costs pushed overall consumer prices up 2.5% in the 12 months to January, the shelter index – including rent values -- rose only 0.2%.

And even those modest gains are slowing down, following December’s sharper rise of 0.4%.

The figures confirm the anecdotal observations of real estate investors in key markets across Canada, as they grapple with a growing number of rental units in their markets.

The effect has been to further swing the pendulum over in favour of tenants, increasingly spoiled for choice and increasingly willing to ask for reductions in order to sign leases.

That strategy is working.

“Recently, clients – and I, as a property investor  have also had to do it – are cutting rates as long as they can get a tenant to sign a three-year lease,” Steve Arruda, a Toronto real estate investment specialist with Century 21. “Those clients are worried about vacancies because of flood of properties, mostly condos, expected to come into the market. They’ve decided to take a bit of a rent drop in order to ensure occupancy and maintain cash flow.”

The analysis comes on the heels of a recent warning from the Central Bank, suggesting condo markets across the country are most vulnerable to a correction.

“Certain areas of the national housing market may be more vulnerable to price declines, particularly the multiple-unit segment of the market, which is showing signs of disequilibrium,” reads the Bank of Canada’s December economic review, issued Thursday. “The supply of completed but unoccupied condominiums is elevated, which suggests a heightened risk of a correction in this market.”

A grow number of landlords are ready to make that compromise, not only because of the tens of thousands of new condo units likely to hit the rental market by the end of 2012, but also because of a possible increase in the number of renters willing to make the leap to homeownership.

Those prospective buyers, said Arruda, may be waiting for the kind of price correction the BoC is now hinting at. That could translate into a market where demand is falling even as supply grows.

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