OTTAWA, July 22 (Reuters) – Home prices in Canada are falling rapidly after surging during the coronavirus pandemic, but that offers little relief to consumers who are dealing with soaring rents and the power to buying down as interest rates rise.

Desperate potential buyers have found themselves caught in a frenzy of real estate bidding wars during the pandemic, when home prices in Canada have risen more than 50% in just two years.

Now the competition has shifted to rentals, with landlords demanding months of rent upfront and sometimes even pitting tenants against each other to see who will pay the most, according to estate agents and the media.

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The average rent for a one-bedroom apartment in Canada has risen 13.7% since the start of the year, according to data from Rentals.ca, with annual rents jumping 18.5% in Toronto and 19.2% in Vancouver.

The shift from frenzied demand for homes to buy to homes to rent highlights a broader problem with Canadian housing: that there simply isn’t enough of it, said Dan Scarrow, president of Macdonald Realty. in Vancouver.

“Higher (interest) rates don’t destroy housing demand, they just shift demand from buying to renting,” he said. “Demand oscillates between tenants and buyers, depending on rates, as long as supply is limited.”

The Bank of Canada has raised its key rate to 2.5% now, from 0.25% at the start of the year, to tackle inflation, which has hit a nearly 40-year high of 8.1% in June.

The rapidly rising cost of borrowing has cooled the real estate market, sending the average Canadian home price down 18.5% from its peak in February, according to data from the Canadian Real Estate Association.

But lower prices don’t appear to be helping potential buyers, who can no longer get loans due to much higher mortgage eligibility rates. And that, in turn, drives up rental demand.

“Rents have gone crazy because people have to have a place to live,” said Paul Eviston, a Vancouver-based real estate agent. “Demand in the rental market has really taken off as a lot of people who were potential buyers are now forced to rent.”

That strong rental demand has put a floor under condo prices in major cities, real estate agents said, with investors feeling confident enough to wait out price drops and some even looking to pick up more investment properties.

Toronto agent Imran Khan has just sold a loft to an investor who was able to rent it out a few days after closing.

“I’ve listed properties for rent…and we’re getting multiple offers, haven’t we. Like straight away,” Khan said.

Rising immigration and a post-pandemic return to urban centers will further boost demand for urban condos, Khan said. Landlords, for their part, are pushing for higher rents when housing turns over, agents said.

The shift from owned to rented accommodation is also starting to show up in Canadian inflation data, with the increase in homeowners’ replacement cost falling sharply to 10% from 13% in April, while rents remain close to the 32-year high reached in April.

Mortgage interest charges, which have fallen sharply as the pandemic took hold and rates were cut, are now rising. Homeowners who have taken out variable loans or those whose mortgages are up for renewal are the most affected.

“Right now is actually one of those once-in-a-lifetime times where buyers, sellers and renters are probably all struggling,” Scarrow said. “Usually there’s a winner. But I think this time it’s really a fight for everyone.”

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Reporting by Julie Gordon in Ottawa and Shreya Jain in Toronto, editing by Deepa Babington

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