Fewer people are buying homes in the Central Okanagan and prices have recently tumbled. Is it a trend?
The number of homes sold across Canada has dropped significantly and prices have generally flattened out. Vancouver house buyers have bought half as many homes in 2018 as they did in 2016. Kelowna appears to be one of the better performing markets even thought his year saw activity well below prior years.
Activity in the condo market is not as depressed as houses, but still trending below previous years from March 2018 omward.
People aren’t buying homes like they used to and that will make life more difficult for sellers.
After two years of very tight supply which handed negotiating power to sellers, the Kelowna market for condos is suddenly a buyer’s market and prices have tumbled.
As a result of the increasing supply, condo prices have dropped in the second half of 2018. The average price of a Central Okanagan condo peaked at $364,000 in March and the Median price peaked in April at $340,000. Both average and median prices have since dropped close to $300,000, down about 18 to 15 percent respectively.
Tight supply appears to have been the key driver holding prices up in the face of higher interest rates and new mortgage rules that reduced affordability. The net effect was that only the wealthiest buyers were still in the market. Sales are down across Canada because local incomes are not high enough to allow people to afford the current prices. If more people try to sell their homes, per the current trend, then prices will have to drop in order to find buyers who can afford a home.
So far this year, 1,315 condos were bought and around 450 unsold condos have started to pile up while at the same time construction has begun on 1,800 more condos. 2019 may well see a continued buyer’s market that will push down condo prices. Next year should be a good year for buyers.
The average condo price has converged on the median price and that implies either:
Fewer luxury or newer apartments are being sold, or
Luxury and new apartments are dropping in price
People buying condos as student rentals are taking on some risk since the BC Government is planning to fund construction of more subsidized student housing on university campuses like UBC Okanagan. The risk is somewhat mitigated because those student residences will take several years to be built. To further mitigate your risk on a student rental, consider buying a studio (0.3% vacancy) or a 2 bedroom (0.9% vacancy) apartment. One bedroom apartments currently have the highest vacancy rate at 3.5 percent.
As things stand, the condo market has entered balanced territory with more than 6 months of inventory for sale. That will allow buyers and sellers to negotiate prices on an equal footing.
Kelowna house prices are ending the year below their January 2018 price. In comparison, Westside Vancouver house prices have dropped 13 percent. In January 2016, a average priced Kelowna house could be bought for $530,000, but since then prices have risen 23% to the current average price of $670,000; beyond the reach of many potential buyers.
The flattening of prices is partly caused by higher interest rates and mortgage rules, but it is also the result of prices outpacing people’s ability to pay.
As a result, homes are starting to pile up on the market and Kelowna appears to be headed toward a buyer’s market for single family houses.
In the real estate industry, there are metrics used to indicate when buyers and sellers have more negotiating power. As a rule-of-thumb, less than 5 months of inventory (i.e., homes for sale) means it is a “Sellers Market” and the seller has the upper hand in a price negotiation. When there’s more than 9 months of inventory for sale, it’s a “Buyers Market” and buyers have more negotiating power. The theory is that buyers know that it could take over 9 months to sell the home, so the seller should probably drop the price to make sure the buyer in front of them purchases the home, or they could potentially be having open houses for 9 more months.
There is still a lot of uncertainty in real estate these days. The markets for both houses and condos in Kelowna and the Central Okanagan are trending toward a position where buyers are gaining negotiating power. If you are going to try to time the market, then this is a time for sellers to pull the trigger since it appears conditions are set to soften further. For buyers, it seems prudent to wait and see.
If your family is growing and you need a larger space, simply a place to call your own, then timing the market may not make sense but you can take advantage of these tips to reduce your risk.
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