Located at the most easterly edge of North America, the province of Newfoundland and Labrador has a rich history with an abundance of natural wonders. Situated in Canada's Atlantic region, this coastal province has vast lands with a relatively small population compared to other provinces in the country. The region experienced the same tumultuous economic times in the mid to late 2000's that much of North America experienced, but the economy has recently rebounded significantly. With a boom in both the energy and resources industries, the economy in Newfoundland has taken off in recent years, with unemployment rates reaching their lowest levels in 26 years. Timing the real estate market can be difficult, but those who are looking to buy, sell, or invest in real estate may be interested in exploring the housing market trends in this flourishing area of Canada.
The Local Economy: Growth in Natural-Resource Production
While the region does not boast the country's strongest economy, the Canada Mortgage and Housing Corporation (CMHC) predicts Newfoundland-Labrador will have the second best performance in Atlantic Canada in terms of economic growth through 2014. The Gross Domestic Product is expected to increase by 1.2 per cent in 2013 and by 2 per cent in 2014. This rate of growth is promoted in part by strong consumer spending, an increase in oil and other energy projects, and mining-related activities. The growth of Newfoundland and Labrador's economy is also largely due to the region's abundance of natural resources-including oil, gas, hydro and wind.
Across Canada, mortgage rates have declined considerably over the past few decades. During the 1980's and 1990's, the typical interest rate for a standard 25-year residential mortgage was well above 10 per cent, but as of December 2000, the average rate for this same type of mortgage had decreased to about 7.81 per cent. Once again in December of 2012, the rates decreased even further and were near historically low levels at 4.15 percent. Lower mortgage rates make it more affordable for new homebuyers to enter the market, and also encourage existing homeowners to either refinance or to move into a new home. These rates are expected to remain relatively low for the next year or two.
While population growth in the local area is expected to be rather nominal in the coming year or so, low mortgage rates may create some demand for new starts in residential single family housing. In 2013, the province is expected to see about 2,500 single family starts and approximately 2,400 new starts in 2014. Condominium construction is anticipated to decrease and to compensate for this, about 900 new multifamily units will be built in 2013, and about 800 in 2014. The demand for affordable housing will likely drive the need for more multifamily units in the coming years as the population ages.
In comparison to recent years the resale activity for 2013 and 2014 is expected to be strong in Newfoundland. Resale of existing units in 2013 is anticipated to be over 4,000, and the figure for 2014 is projected to be around 4,100. The strong activity in the resale market is driven by the region's economic expansion in the energy industry.
Residential Real Estate Prices
In Newfoundland, the average price for homes sold was $289,681 in April of 2013. This reflects an increase of about six per cent over the previous year. The national average home price only increased by 1 per cent during this same period of time. Because inventory of existing homes, migration and demand are expected to be relatively stagnant in the coming year or two, substantial growth in prices is not expected for 2013 or 2014.
Real estate activity has been especially promising in St. John's, where the housing market is performing nearly twice as well as the national average. With an increase in housing prices, some are predicting the housing bubble may burst. However, Chris Janes, senior analyst for CMHC, says these worries are overblown and unfounded. In an interview with CBC News, Janes says, "We have a very strong economy right now that's been driving the housing market... [and it] should remain fairly stable as we move into next year."
Timing a real estate market to anticipate when to buy, sell or invest in a property can be tricky. There are multiple factors that can trigger a sudden and steep decline or increase in the housing market, and these factors may be unpredictable. However, analyzing the current data for the housing market in Newfoundland may prove to be useful. Those who are interested in selling their house should be aware that conditions are favorable for buyers. There is a considerable amount of inventory available, and this puts buyers in a position to negotiate for a great price. Likewise, this may be a suitable time for an investment. Interest rates are currently low and housing prices expected to nudge upward only slightly. Those who have plans to purchase a property for personal use or investment may find success on the market, although an appraisal is always a good idea.
While the economy in Newfoundland has been stagnant in past years, a relatively recent energy boom and economic development have provided just the push the housing market needs to strengthen itself. With a fast-growing economy, relatively affordable housing prices and low interest rates, there may not be a better time to purchase a home in this province.