St. John's housing prices will lead country in growth, according to Moody's

For homeowners in St. John'sit may seem like a long time coming, but Moody's Analytics is projecting housing prices to increaseby more than six per cent over the next few yearsand lead the country in growth.

There are two main reasons for the projected rise: how low house prices are, and the improving unemployment rate, said director and head housing economistAndres Carbacho-Burgos.

The first is where house prices sit, compared with the $340,000 mark for single family homes in late 2015.

"Now they're at less than $300,000. That's over a 10 per cent decline," said Carbacho-Burgos, adding thathas led prices in St. John's to be "below trend."

When asked if that decline over recent yearsis simply a correction for a previously hot housing market,Carbacho-Burgos said, "probably not."

"The unemployment rate and the labour market in St. John's have improved significantly in recent months, and we expect it to remain that way for at least a couple of years," he said.

That's the second reason for the predicted rise in prices.

Carbacho-Burgos said the unemployment rate in the province's capital city averaged around nineper cent from mid-2016 to late 2018, whereas it's now below eight per cent and expected to lower.

"The fact that the unemployment rate was at a cyclical high in 2016 to 2018 makes me wonder whether or not there was truly a hot housing market in St. John's as opposed to, possibly, the housing stock being displaced by new homes."

Market corrects itself

Carbacho-Burgostold CBC Radio'sOn The Gothat Moody's expects a reduction in new home construction to eventually affect those prices as well.

"When house prices are below what we calculate as trend, you get a couple of correction mechanisms," he said mainly a slow in construction, which tightens the supply of houses.

At 12 to 14 months of sales, MLS listings indicatethe ratio of inventory to sales in St. John's is much higher than the Canadian average, he said.

"It's the reason why house prices in St. John's are way below trend."

Along withfewer new homes being built, he said homeowners tend to keep houses off the market when prices are low. Thatshould mean overall fewer homes for sale, tightening supply and helping prices go up.

But what about the fallingprices of oil and gasin all of this?

"We believe the effect will be limited, in part because Newfoundland and Labrador in general has already had a significant degree of outmigration over the past three to four years, so it's hard to see this getting worse until energy prices really, really fall below our forecast," saidCarbacho-Burgos.

He said we would need to hit the unlikely "low oil price scenario," in which world oil prices are below $40 US a barrel, compared with a forecase ofover $50 US,for outmigration from this province "to really accelerate."

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