Mortgage rates have been going up since the beginning of 2022. Are higher mortgage rates good for real estate investors?

Let’s look at data to help answer this question. 

In February 2020, the 5 year posted rate was 5.19%, average downtown 1 bedroom condo rent was $2256 and 2 bedroom condo rent was $3083.

In early June 2022, the 5 years posted rate is 5.25%, average downtown 1 bed condo rent is $2167 and 2 bedroom condo is $3025. 

We are pretty much at the same level with respect to rental and mortgage rates prior to the pandemic. The last 2 years have been abnormal: we had ultra low rates, double digit price increases and rents dropped due to people moving out of the city. Now, the opposite is happening: people are moving back, the city lifestyle is vibrant and desirable.

Higher Mortgage Rates

Buying an investment property is buying a business. When buying a business, one looks at the potential upside of the opportunity . With interest rates expected to go higher as indicated by the Bank of Canada to tame inflation, more potential buyers will be pushed out into the rental market as the mortgage qualification rate increases.

When I put my real estate investor hat on I see the following opportunities as interest rates rise:

1. Less competition from other buyers. Actually negotiating is back in style with conditions

2. Less supply of rental properties: Tenants who moved into their units the past 2 years realize they have a great deal and will be reluctant to move due to higher rents in today’s market

3. More rental demand: Due to higher mortgage qualification rate, some will choose to rent in the city versus moving out to the 905.

4. New rental supply delays due to supply chain issues. New projects will take longer to complete due material & labour shortages

Based on the above factors, I see rental rates increasing double digits moving forward in 2022. This bodes well for real estate investors as there will be potential for higher revenues to offset the investment property carrying costs.

So, are higher mortgage rates good for real estate investors? I think you know the answer by now.

If you’re looking to invest in real estate, download my real estate investor calculator and guide.

Until next time happy investing….