Dial turns to simmer on Kelowna real estate market

Posted by on Monday, November 21st, 2016 at 2:32pm.

Home sales slowed by 12% in October throughout Kelowna and the Okanagan as the market in B.C. continues to shift and borrowing policies become stricter.

Last month there were 779 sales in the Okanagan compared with 884 in September, however the sizzle isn’t completely dialed down.  Residential sales are still ahead of October 2015 by 19%.

The Okanagan Mainline Real Estate Board (OMREB) says real estate is on a gradual decline with the average home price falling slightly and properties taking a few days long to sell.

Inventory remains tight throughout the Okanagan, and that alone will keep the progression towards a more balanced market very slow.

Board president Anthony Bastiaanssen said in his October report that the changing conditions in the Okanagan real estate market is due in part to the provincial government’s tinkering with rules for foreign buyers in the Lower Mainland of Vancouver and last month’s new stress test for mortgage borrowers implemented by Canada Mortgage and Housing Corporation (CMHC).   He admitted that the new changes don’t affect everyone who is purchasing property, however chatter in the public domain can create an impression of instability in the marketplace, effecting a buyer’s mindset.  Discussion with local REALTORS® is imperative, helping a potential buyer separate fact from fiction as perpetuated in the media.

Average prices dropped by 4.9% to $454,426.72 in the Okanagan Region. That average price is still 6.9% above the average residential property price in October 2015.   The average number of days it took to sell a home last month rose from 84 to 92.  The number of new listings to hit the market was just 884 last month.  In September, there were 1,118 new listings and in August, 1,230.  Fewer properties coming online will keep inventory tight in Kelowna and area, preventing a free-fall of home prices as we slide into the slow part of the calendar year.

Secondary Suites

Of note in November was the unanimous approval by Kelowna City Council to approve secondary suites across the board in all Kelowna neighbourhoods.  That includes golf course communities where previously, zoning prohibited the creation of secondary suites. 

This will allow Kelowna homeowners to legally create additional income to help pay mortgage costs and provide income for Kelowna senior citizens.

The move will enable investors to purchase homes in luxury communities for income purposes as well.

CMHC Predictions

Just like a boy scout, the federal housing agency likes to be prepared.  CMHC recently laid out several future possibilities as to which way markets could go based on a variety of scenarios. They examined the four-year period, 2017 to 2021 to predict what might happen should interest rates rise and what the agency’s possible responses might be.

They looked at what might happen with a sudden rise in interest rates which would likely cause a huge drop in prices which might possibly result in the default of insured mortgages.  In the worst-case scenario, CMHC thinks that a scenario such as that might result in insurances losses exceeding $1.1 billion.   

How did they arrive at that?  They looked at what might happen should interest rates rise by 2.4%. Over a two-year period, they figured home prices would fall by 30%.  They threw a possible unemployment rate of 11.3% into the mix.  With Canadians carrying such high household debt, it’s not rocket science to see that under these circumstances, many current homeowners just wouldn’t be able to keep up with the load.  CMHC wondered if they have enough capital to handle such a monumental loss?

There might also be a huge housing correction, similar to what occurred in the U.S.  The price of oil might fall below $20 a barrel.  They even hallucinated about what might happen in the event of a devastating earthquake and an economic depression of immense proportions.

Some of the scenarios laid out during this study were extreme with very low probability of happening; however, the exercise helps plan for the future providing some confidence for Canadian homeowners that should extreme insurance losses occur, CMHC should be able to weather the storm.

None of the information gathered during this 2017-2021 stress test should be regarded as a future prediction or forecast as to what is come.

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