Posted by Moishe Alexander
The St. John’s area housing market has been driven by a timely blend of resilient consumer spending, large capital projects and improved employment, which have resulted in reducing out-migration and continued population growth. Despite the recent global economic uncertainty, strong fundamentals have, and will continue to support demand for housing throughout the remainder of 2009 and in 2010. Accordingly, growth in the local housing market is expected to continue. The buoyant local renovation sector will be stimulated by the home renovation tax credit. Also, historically low mortgage rates have reduced the cost of borrowing, but some buyers remain sensitive to the considerable price growth that has occurred in this market. Personal income growth has been aided by wage gains and tax cuts and this income growth has offset higher house prices somewhat and will continue to provide support to housing starts in 2010. Overall, the positive outlook for the St. John’s area housing market will be reinforced by favourable trends in demographic and economic fundamentals, as well as consumer spending and on-going economic momentum supported by a lengthy list of major capital projects.
Despite the global economic situation over the past year, several planned and realized major capital projects continue to inject stimulus into the local economy and contributed to increased resiliency on the part of consumers. Consumers, a key component of economic growth in 2008 through related spending on retail, auto and housing activity, have been more cautious in 2009, but still remain positive overall, as spending activity continues to show growth. However, natural declines in offshore oil production will dampen GDP growth this year and next. During 2008, oil production declined nearly seven per cent over 2007 levels. This year, oil production is expected to decrease 21 per cent, with declines at all three producing oil fields. Weaker offshore oil production will dampen growth over the 2009 to 2010 period, although increased royalties received by the province will contribute to economic growth. Weak commodity prices have resulted in decreased and/ or suspended mineral exploration and mining extraction activity in the interior region of Newfoundland, as well as Labrador this year. However, global resource prices have begun to rise again, which will add to economic growth in 2010. Coming off the heels of real GDP growth of 7.9 per cent in 2007 for NL and additional growth of 1.8 per cent in 2008, expect a 3.8 per cent decline in 2009 real GDP, led by lower oil, mineral and newsprint exports. A two per cent rebound in economic growth is expected in 2010.
With record sales posted during the past several years, the St. John’s area resale market is expected to cool slightly in terms of total unit sales. Accordingly, the forecast calls for MLS® sales of 3,450 units this year, down ten per cent from 3,835 in 2008, with 3,575 sales expected in 2010. With many newly built homes now selling through the MLS® system, healthy residential construction activity will continue to have a positive impact on total MLS® sales. Unprecedented housing market activity in 2008 favoured sellers, with a market characterized by above average unit sales, very low available inventory and 20 per cent average price growth. However, throughout this year, the market has favoured buyers. A marginal downward trend in sales has resulted in more inventory, whilprices have continued to advance. In fact, active listings or inventory have trended 33 per cent higher in 2009 compared to last year. With demand expected to cool only slightly over the forecast period, unit sales will remain historically strong, but will noexceed recent record levels. While increasingly favourable for buyers, weaker resale market conditions have proved challenging for some sellers, resulting in fewer offers on higher priced listings, with offers often significantly below list price. With increased inventory available tchoose from, many buyers have farewell in their search for an existing home this year and in some cases, people are being swayed away from the higher-priced new home market. The growing new versus existing house price premium has resulted in increased first-time buyer activity within the lower-priced resale market and this trend will likely continue, with prices expected to head higher.