Kelowna housing predictions for 2017

Posted by on Saturday, November 12th, 2016 at 12:18pm.

More resale homes and new construction will catch up to demand

Canada Mortgage and Housing (CMHC) has crunched the numbers and issued its forecast for the next 12 to 24 months in Kelowna.   According to expert calculations, the real estate market in Kelowna is going to moderate.

From January to the end of August of this year in the Kelowna Census Metropolitan Area (CMA) there has been record-smashing activity in the market well above the numbers from 2007.  This was the last time there was such robust activity in the housing market.

Kelowna’s Resale Story

The resale market saw 4,926 units change hands in the first 8 months of the year compared to 3,819 MLS transactions in the first eight months of 2015.  That’s a gain of 29%.   The momentum in the Kelowna market began to build in 2014 according to CMHC and continued to build throughout 2015 despite the economic uncertainty swirling around the energy sector.  The first six months of 2016 saw even more gains in the resale market, due in part to population growth in the Okanagan and continued low mortgage rates.   Sales in every sector (single-family, townhomes and apartments) were brisk and new inventory entering the marketplace in Kelowna simply couldn’t keep up resulting in a seller’s market prevailing in 2016.   This also pushed sales over the 10-year average of 4,193 and over CMHC’s original forecast.

New Construction in Kelowna

With more people moving the Okanagan from the Mainland and people with good jobs moving up from starter homes, new construction has been flourishing.  CMHC says even with migration to the Okanagan beginning to moderate there will be a steady demand for new housing from the young professional market, retired people looking for vacation homes and seniors moving for the temperate climate.  The largest demand is and will continue to be in multi-family developments with apartment condominiums coming in a close second.  The latter being constructed in the downtown area in compliance with the City of Kelowna’s mission to create density in the core.

Sales Forecast

Using historical data, CMHC therefore has forecast a moderation of sales in 2017 and 2018.  The current pace of population growth in Kelowna should begin to slow down and interest rates are expected to creep back up.  Here’s what CMHC thinks is going to happen:

  • 2016:   6,500 to 6,900 resale transactions
  • 2017:   5,520 to 6,290 resale transactions
  • 2018:   4,820 to 5,890 resale transactions 

Price Forecast

A shortage of inventory has been pushing prices up with the average MLS price rising 14% in the first eight months of 2016.  Often when prices start to rise, sellers start giving serious consideration about jumping in to take advantage of the market. CMHC believes that in 2017, those who are thinking about selling will finally take the leap and new home builders will have caught up to the demand.  These factors will help to moderate conditions but not stifle prices.  Here’s what CMHC thinks will happen with prices:

  • 2016:  Average MLS $491,100 to $498,900
  • 2017:  Average MLS $516,400 to $533,600
  • 2018:  Average MLS $522,500 and $547,500

Forecast on Mortgage Rates

How does CMHC predict that mortgage rates might rise?   The experts examine the economic forecast for inflation rates and GDP growth by several Canadian institutions.  It’s not a huge jump but enough that it may impact people carrying a very large balance. Here’s what they believe should happen with five-year mortgages:

  • 2016:  4.5% to 49%
  • 2017:  4.4% to 5.2%
  • 2018:  4.5% to 5.7%

Other Trending Topics

Other factors in the equation from CMHC in the Kelowna area include:

Employment:   2015 was a stellar year for employment in Kelowna with stats for the first six months of 2016 showing a slight 2.8% decline in the employment rate.  It’s expected that 2016 will close with an improvement based on recent demand for labour.

Vacancy Rates:  It’s tough to find a good place to rent in Kelowna because newly completed multi-family buildings and apartments haven’t kept pace with population growth and this is expected to continue for the short term.  When new units come online the vacancy rate is expected to improve but again, CMHC’s keyword is “moderation”.

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