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 though this year‘s is well below prior years.
As well, there’ve never been so many choices for buyers this early in the Spring. You have to wonder how many homes will be on the market in July and August.
Activity in the condo market is also slower than previous years.
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 already surpassed the previous peak in 2018. There are so many options for condo buyers.
After two years of very tight supply which handed negotiating power to sellers, the Kelowna market for condos is suddenly a balanced market and prices began to drop but then stopped. Since December they’ve jumped over $50,000.
Supply is plentiful, demand is weak, the government is attempting to temper prices, and foreign investment has fled to Ontario and Quebec. Market fundamentals would indicate prices should be dropping however they are not. Perhaps Canadian speculative buyers are driving up prices or local buyer sentiment is still very bullish?
The net effect of price increases is 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.
In 2018, 1,315 condos were bought and around 450 unsold condos piled up on the market by the end of the year. At the same time construction began on 1,800 more condos. 2019 has had fewer buyers and more condos for sale and that suggests a continued longer-term trend toward a buyer’s market will push down condo prices. 2019 is likely a fantastic year for buyers.
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 6 months of inventory for sale. That will allow buyers and sellers to negotiate prices on an equal footing.
In January 2016, a median priced Kelowna house could be bought for $500,000, but since then prices have risen over 20% to the current price of $574,000; beyond the reach of many potential buyers.
Factors pushing priced down include plenty of supply for sale, higher interest rates, the flight of foreign investors to Ottawa and Montreal, and house price have outpaced people’s ability to pay.
As a result, homes are starting to pile up on the market and Kelowna is now a solid balanced market for 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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