Updated October 17, 2019
Prices in the Central Okanagan have settled into a seasonal pattern. They rise in Spring and Summer and subside in Fall and Winter. This is a change from previous years so it will take time to tell if this is the new normal. At this point, moderate year-over-year price declines are likely in Kelowna. Particularly since Calgary and Vancouver, the primary sources of buyers of recreational properties, have been seeing price declines of late.
Some people blame higher interest rates and tighter mortgage rules for the weaker market, but these arguments don’t hold much weight. Mortgage rates are still at rock-bottom lows and market weakness in BC began in 2016 when foreign buyer taxes came into effect rather than in 2018 with the introduction of the stress test. BC house prices have primarily weakened because foreign direct investment has shifted to Montreal, Toronto, and Ottawa.
This article covers:
Where are Okanagan prices headed?
What are Purchase and Listing Trends ?
Should investors sell?
Is this a good time to buy?
The good news (for sellers) is that prices in Kelowna recovered to the 2018 peak after a steep decline last winter. Home prices this Spring didn’t reach quite as high as the levels seen in 2018 but with the slower real estate months ahead prices will likely begin slipping once again. At the same time, condo prices have been zig-zagging with no consistent trend.
Since the peak in May 2018, Okanagan Valley house prices have dropped a little.
Over the long-term, the benchmark price has been relatively flat. Each Spring usually sees a run-up in prices but this subsides in the Fall and Winter. Although there are reports of more purchases in the second half of this year, the purchases are at lower prices. It’s difficult to discern whether buyers are targeting cheaper homes or sellers are dropping prices in order to fit within buyer budgets.
The downward price drift is likely a result of prices overshooting in past years. Rising interest rates and mortgage stress tests are less of a factor in the Okanagan because houses are much cheaper than Toronto and Vancouver while incomes are comparable to those markets. If Vancouver and Toronto could support million dollar home prices with the same household income as the Okanagan then surely current conditions are simply a result of the Okanagan’s abundance of available housing.
Condo prices have been fluctuating a lot. Although the benchmark condo price has risen recently, we expect price drops heading into the colder months.
If this is the new normal, people shouldn’t bank on huge home price increases but instead should focus on buying the home that gives them the lifestyle they want.
At Mortgage Sandbox, we would like to see developers building more 4 and 5 bedroom condos. Not everyone can afford to put their family in a house, and for many parents work related travel makes it difficult to stay on top of basic upkeep (i.e., mowing lawns, clearing eaves, shoveling sidewalks).
Although Okanagan home prices have moderated they are still not very affordable. To put this into perspective, a first-time home buyer household earning $71,000 (the median Kelowna household before tax income) can only get a $230,000 mortgage. This means that to buy an entry level $550,000 house, a first-time home buyer needs to save a $320,000 cash down payment or receive a very generous gift from mom and dad. For most people, that’s just not on the cards.
Looking forward to the end of 2019, we see most forecasters expect prices to drop and the brunt of price drops will likely be felt by higher priced properties (i.e., more expensive neighbourhoods and detached single family homes).
Given the forecasts, the current market weakness, and the increased downward price pressure, prices will likely remain flat or drop for the next few months. As well, homebuyers and homeowners shouldn’t expect much price appreciation between now and the end of 2020.
What does this mean exactly? Well, the market for all homes (detached, townhome, condo) are all trending toward a position where buyers have as much power as sellers. This means buyers can actually negotiate discounts and incentives. The positive outcomes for buyers are lower prices, more selection, fewer bidding wars, and ultimately a little less stress.
Local realtors have been advocating the government to loosen lending standards to increase demand however with balanced market conditions this doesn’t seem warranted.
At Mortgage Sandbox, we believe that government should keep steering the market toward balanced market conditions and let buyers and sellers figure out a fair price with equal negotiating power.
2019 has been a slow year for home purchases, which is certainly not something we’re used to seeing. Higher priced homes have seen the most dramatic falls in purchase and sales. Our research suggests that foreign buyers, who were playing a significant role in Okanagan condo pre-sales, are moving on to other cities and countries. Scanning news outlets across Canada and reviewing realtor marketing materials, it becomes clear that any foreign money still coming to Canada seems to be directed toward Toronto, Ottawa and Montreal.
The number of Central Okanagan houses sold is trending slightly below past years while the number Metro Vancouver houses listed for sale has been trending a little higher than past years. These trends of lower buyer interest and higher supply explain the moderating prices.
In contrast, the number of condo purchases (sales) have been far lower compared to previous years and we are seeing dramatically higher active listings. Basic economic theory tells us that we can expect this to lead to condo price reductions.
People aren’t buying condos like they used to and that will make life more difficult for sellers particularly if homes start piling up.
Condos for sale have far surpassed the previous peak in 2018. There are so many options for condo buyers.
At Mortgage Sandbox, we break down our market analysis to five key forces: affordability, capital flows, government policy, supply and popular sentiment. We’ve completed a full analysis if the impact of these factors on Metro Vancouver and the Okanagan is facing a similar situation. Read the full report to understand how these factors are affecting prices.
From a seller’s perspective, now is a better time to sell than in two years forecasts predict that Calgary house prices will be flat or drop for the next two years.
To benefit from the best-case scenario, a home buyer should talk to their mortgage broker about prioritizing flexible loan conditions and mitigating risk. Find out more about the benefits of a mortgage broker.
With more buyer negotiating power and dropping prices, 2019 is a good time to buy. However, 2020 may be even better.
If you are thinking of buying just be sure to drive a hard bargain, and cover your bases with smart and educated decisions. Don’t bite off more than you can chew.
Buying a home is a big decision, so check out Mortgage Sandbox’s Canadian Home Buyer Guide so we can walk you through the end-to-end process and get you ready to buy your new home!
Here are some recent headlines you may be interested in:
Kelowna, Vernon see steep dip in housing prices in first six months of 2019 (Kelowna Capital News)
Kelowna real estate market seasonally on-trend heading into summer (Kelowna Capital News)
Analyst downplays plunge in Kelowna’s residential real estate market (Kelowna Daily Courier)
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