Housing investors are heading for the exits as rates rise

At the tail end of a historic bull run in Canada’s housing market last year, investors came to comprise a fifth of the country’s homebuyers.

In early July, Toronto-based mortgage broker Ron Butler’s client called him with exactly that dilemma: The financials on the suburban condo he purchased as an investment property just four months earlier no longer made sense. Rents could no longer cover interest payments on the mortgage after a six-fold jump in the central bank rate. 

Butler advised his client to sell, instead of losing money on the property each month. The Bank of Canada raised its benchmark rate another percentage point to 2.5 per cent just a week later, so Butler is bracing himself for even more calls like that. 

“It’s starting now,” Butler said. “Every quarter there’s more bad news. More renewals. More negative cash flow. More, ‘Does it make sense to hold onto this rental?’”