PEI REAL ESTATE PRICES REACH UNPRECEDENTED LEVELS
Here in PEI we have been going through an unprecedented increase in housing prices. Not that many years ago we had a buyer’s market and homes could be bought as low as $50,000 in some cases. Those $50K homes are now running closer to $200K.
We have actually seen bidding wars, offers are presented without conditions and don’t even look at real estate unless you have a letter from your lender. There are just more buyers than there are sellers. It is a totally unbalanced market.
INTEREST RATES & NEW BUILDS AFFECT PEI REAL ESTATE PRICES
There are two factors that might have an effect on prices and availability in PEI. The first is that interest rates are beginning to climb to combat inflation and the second is that there is finally some new building going on here.
The question is “are these enough?”. Are you likely to see a sufficient reduction in house prices to make it possible for the first-time buyer to get in.
DOES THIS MEAN THAT PEI HOMES WILL BECOME MORE AFFORDABLE SOON?
Housing costs in PEI have gone up over 23% and this figure is higher in Charlottetown and Summerside. The average home in 2022 sold for $335,700 up from $271,300 in 2021. However this is still not even close to Toronto or Vancouver.
Home prices across the country peaked in January and February this year and while in PEI it may not be correct to say pricing is down, it isn’t going up at the same rate. If the interest continues an upward momentum as forecast, then pricing might drop a bit.
Will this mean you will be able to buy a home. Perhaps not. If the only reason that home prices drop is that interest rate hikes are cooling the market then the issue is going to be increased monthly payments caused by interest.
So can you afford these new increased mortgage payments? Perhaps a better question would be, will banks qualify you for the increased payment while even on a lower priced home. Further can you pass the government imposed “stress test” ie being able to qualify at a still higher interest rate to simulate what might happen. Further as inflation increases exponentially, gas, food, debt service and more, the average household budget is already stretched to the breaking point.
SO HOW COULD THE PEI REAL ESTATE PRICING CRISIS BE SOLVED?
So although the market is predicted to cool – before first-time buyers can jump in to the market it might need to freeze. A 30% fall in prices would only bring the market back to where it was in 2020.
Really the only way to effectively fight the high cost of housing would be a building boom. During 2020 & 2021 in the midst of COVID the lumber industry was shutdown and there was a scarcity of building supplies. This discouraged building and contributed to the current situation. Although there are more construction supplies available now and prices reduced considerably, there still seems to be a scarcity of available skilled labour.
I am pleased to see that there have been more construction starts recently. We really need a push, perhaps with government help, to build more housing. I am talking something similar to the US in the 50’s. Only by increasing the supply in face of increasing demand will prices begin to stabilize. Not get cheap – but stabilize to a point where more people will be able to purchase.
The next year will be interesting indeed. Inflation is rising, interest rates are rising, what will home prices do? Stay Tuned and read the Island Real Estate Book for current information about the PEI real estate market.
I am Ron Barrett, co-owner and broker at Century21 Northumberland Realty. I and my team of 30+ professional real estate agents would be pleased to help you with all your Prince Edward Island real estate needs. I can be reached at 902.888.7238 or firstname.lastname@example.org