Is the Newfoundland and Labrador real estate market still sizzling, or is it cooling down like a February evening in the province?
For the last two years, Canada’s housing market has been taken aback by the exceptional growth in Atlantic Canada, heated up by the population boom and the surge in home prices. This was a surprising turn of events because, before the coronavirus pandemic, people were leaving parts of the east coast, and some local real estate markets unable to gather much momentum.
Now it appears that Newfoundland real estate is joining the broader market. Sales activity is strong, though it has eased recently. Price gains remain sky-high, but growth has also eased year-over-year. Overall, the housing boom is still going strong, but it could be starting to slow down.
Is it a case of higher interest rates after two years sitting at nearly zero? What about major urban centres reopening their economies and sending workers back to the office? Are prospective homebuyers giving up on achieving the Canadian dream of home ownership? Whatever the case may be, the nation’s east coast is still performing well, but it is beginning to witness a slowdown. This could be good news for the locals who are trying to get their foot in the door in the provincial housing market.
Newfoundland Real Estate Frenzy and the Impact on Locals
According to the Newfoundland and Labrador Association of REALTORS®, residential property sales dipped 0.6 per cent from the same time a year ago, totalling 488 units in April. Year-to-date, housing transactions have increased 7.9 per cent compared to the same time last year, hitting an all-time high of 1,626 units.
On a historical level, home sales were 40 per cent above the five-year average and more than 55 per cent above the decade-long average for the month of April.
The Association’s data show that housing prices continued to strengthen to start the second quarter. The MLS® Home Price Index (HPI) advanced at an annualized pace of 11.8 per cent to $327,700. The average price of homes sold last month jumped 7.6 per cent to $284,765, while the year-to-date average price swelled 7.7 per cent to $275,368.
All residential property types recorded notable increases to kick off the busy spring buying season:
- Single-Family Homes: +11.1 per cent to $301,100
- Townhomes: +9.8 per cent to $288,300
- Apartments: +6.1 per cent to $239,200
According to the association’s numbers, supply is still playing a significant part in the Newfoundland real estate market. Put simply, the market is tight, and inventory is falling short of demand.
In April, the number of new listings plunged 29.8 per cent year-over-year, totalling 822 new units. Active residential listings also fell 38 per cent to 2,588 units, the lowest level in a decade.
On a historical level, new listings were 10.4 per cent below the five-year average, while active listings were 36.8 per cent below the five-year average.
Months of inventory, which gauges the number of months it would take to exhaust current inventories at the present level of sales activity, came in at 5.3 in April, down from 8.5 months in April 2021. The long-run average is 14 months.
But there are some encouraging data to suggest that new housing construction has started becoming active. According to Canada Mortgage and Housing Corporation (CMHC), housing starts have surged more than 70 per cent year-over-year to 63 units. In the first four months of 2022, housing starts have totalled 181 units.
Suffice it to say, the Newfoundland real estate market is defying national trends. But where does this leave local homebuyers?
Some call it “real estate rage,” as many prospective homebuyers in Atlantic Canada are finding themselves priced out of the local market. With many out-of-province homebuyers coming to Newfoundland and Labrador and its regional neighbours, the cost of housing has spiked, leaving people who grew up in the area sitting on the sidelines.
Indeed, many residential properties on the market without any takers were suddenly being scooped up by out-of-province buyers. After a few months, many housing options vanished, contributing to today’s situation where many locals can no longer buy a home.
But how did this happen? For one thing, if you are from Toronto and have recently sold your home, you likely made a good profit. With this cash injection in your bank account, you can afford to offer more than the asking price. It then creates a chain reaction for other sellers, who notice a trend forming in the province. Since many locals do not have access to that kind of equity, many are priced out of a market that had once been one of Canada’s most affordable.
Because asset inflation is sticky, prices are unlikely to decelerate quickly. Instead, these valuations will likely remain sky-high for quite some time, locals could remain priced out of this housing market.