Some parts of Canada are seeing unprecedented growth in real estate prices. In January of this year, Toronto is up 14% over last January. Canada overall is up 17%. And Vancouver—the country’s hottest market—is up a whopping 30%, with the highest prices in single-family houses.
If we remove Ontario and BC from the equation, however, Canada is down 0.3% from last year.
The greatest component of that pull in the other direction is the Newfoundland real estate market. The entire province is down 11.3% over last year, and the capital of St. John’s is down 9.9%. To put that into perspective, the average home price in the province was $333,786 in 2015, and is $295,901 now.
As some background, several years ago, Newfoundland discovered off-shore oil and created facilities to harvest it. This oil created thousands of jobs and stimulated the provincial economy that was unseen in the province since its days of plentiful fisheries. With these high-paying jobs and flowing money, real estate prices rose quickly, with an influx of building including luxury condos.
In recent years, the price of oil has plummeted, sending Newfoundland spinning. Last year, the province had a $2.4-billion deficit. In late November of 2015, oil was at $45 per barrel, and now it’s in the low $30s, so the province may not have reached bottom yet. As a detached-home and row-house province, high-priced condos didn’t even exist before the oil boom, so many of them are sitting empty, despite significant price drops.
To make matters worse, the drop in oil is also a factor in the fall of the Canadian dollar, meaning Newfoundland is paying more for food, much of which is imported from the US. And the unemployment rate is sitting at 16.8%, the highest it’s been in at least five years, if not longer.
So, if you’re a homebuyer in Newfoundland, or you want to invest in a home on the island, what do you do?
If you happen to work in a secure field and have the resources, buying while the market is down is a good idea. Oil will go back up, meaning the provincial economy will also pick back up. You may want to wait until the market is definitely at its low point (using your and your agent’s best judgment) before you look into buying. Like stocks, you want to buy when the market’s low and sell when it’s high, so wait to see what happens.
Also, you may see an influx of outside buyers scooping up real estate in the next couple years. Since the Newfoundland employment turmoil isn’t affecting people in other areas—the next highest provincial unemployment rate is PEI at 12.5%—investors from other provinces will be scooping up Newfoundland homes as getaways or investment properties. This is especially true considering the Greater Toronto and Vancouver Areas are both boiling hot; buyers will be looking to invest elsewhere, in markets that are sure to grow.
If you’re a homebuyer in Newfoundland already, you’re best to hang on to your home for the next little while, if you can. The market should rebound when oil goes back up, but possibly not to the same price points as we saw a couple years ago, but higher than now.
Also, keeping a home for a long period of time is sure to go up, regardless of this correction. The average Newfoundland home price in 2007, for example, was $149,258, so we’re still at double the value in a mere nine years.
Long story short: Real estate, even in Newfoundland, continues to be a good investment. The current situation is a “this too shall pass” moment and Newfoundlanders will recover as they have in the past to other problems. And if you’re a reader from outside the province, consider investing in a home out east. As a resident of five years, I promise you will not be disappointed.
Flickr: Kenny Louie
