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How Will the Kelowna Real Estate Market Look Like in 2023?

By N. Balani

The Real Estate Market in Canada

Like the other Canadian Real Estate markets, the Kelowna real estate market has fallen slightly since February 2022. The existing environment of rising interest rates has brought the hot market with low inventory to a new reality of lower prices but higher interest rates on your mortgage. 

Kelowna Skyline and Lake Okanagan view from Knox Mountain

Let us take a closer look at how the current market is and what the expectations are for Kelowna real estate for 2023.

Current trends in Kelowna and Okanagan Valley

From the dizzying trends of sky-high home prices in February and March before the interest rates hikes, the hot market has started to cool off significantly all over Canada, including Interior BC.

According to Lyndi Cruikshank, President of the Association of Interior Realtors, “There is usually a seasonal dip in the real estate market during summer. However, this time, things are significantly different. The hike in interest rates and travel recommencement could all be reasons for consumers pressing pause on their real estate plans.”

The chart below shows that although home prices have fallen in the detached and townhouse categories, the condo market has increased despite the higher interest rates.

Source: Association of Interior Realtors  * * Note: All data taken for Central Okanagan

Benchmark housing prices in August 2022 are still up year-over-year for the same time last year across the board for single-family homes, condos, and townhouses despite the higher interest rates and a spike in inflationary trends. (See chart below)

Source: Association of Interior Realtors * * Note: All data taken for Central Okanagan

What has changed in the last three months?

According to the Association of Interior Realtors statistics, in August, the benchmark selling price of a typical single-family home was $1,017,500, down $94,500 from June’s $1,112,000 and a $114,500 drop from the record-high $1,132,000 in April 2022.

For townhouses, the August benchmark was $772,700, a drop of $8,900 from June’s $763,800 but down $56,300 from the record-high of $829,000 in May 2022.

For condos, the August benchmark was $526,700, a $10,500 slip from June’s $537,200 and a $30,300 slide from the record-high $557,000 in April 2022. However, if you look at the Okanagan region, the condo housing market seems to be bucking the downtrend and is seeing a price increase.

Is the market slowing down?

A great barometer to track the slowdown in the real estate market is to look at the average number of days a house is listed on the market. That is to say, from the time of active listings, how many days it took to be sold. The longer the home is listed, the more significant the slowdown in the market. 

For single-family homes in July, that was 37 days, up 22 per cent from 29 days last year; for townhouses, 33 days up 26 percent from 24 and for condos, 36 days up only 2 percent. The number of active listings in the real estate market is also a good indicator of sales activity.

Source: Association of Interior Realtors * * Note: All numbers  taken for Central Okanagan

Kelowna and Okanagan are leaning toward a more balanced market

Cruikshank further states, “We are seeing inventory (number of homes for sale) accumulate, slowly moving upward to healthier levels, which is a welcome relief for prospective buyers.”

In Kelowna and the Interior BC region, the current trend in the real estate market is seeing an increase in the number of homes for sale – as sales and home prices fall off due to interest rate hikes and the strict mortgage approval stress test measures already in place. This makes the housing market lean towards a buyer’s market from the previous seller’s market. There are more options and opportunities for new developments and resale homes for prospective homebuyers. The positive sign is that the Kelowna real estate market (and the province of BC as a whole) became more balanced, with inventory climbing steadily in the last six months.

The Canadian Real Estate Association report suggests that some rebalancing may occur within the different property types: Single-Family Homes: four months of inventory; Townhomes: two months of inventory; Condominiums: two months of inventory.

Has the housing market waned in Kelowna, Interior BC?

This is an important question all Canadians are asking in general all over Canada. So what do the real estate professionals say about Kelowna real estate? 

Although property sales have slowed as buyers wait for either lower interest rates or for inflation to slow down to more acceptable levels, interest in buying has not waned. And at the same time, sellers are sitting on the sidelines, waiting for the home prices to increase before listing in the local market. 

The demand in Interior BC and Kelowna continues, but it is not robust enough to have bidding wars like in the first quarter of 2022. Overall supply continues to increase by 61 percent, with 7,876 units on the market compared to last year’s period. The chart below shows average home prices for Okanagan as a whole in the previous two-year period.

The supply of condominiums has steadily increased in recent times. This is a good sign, but just a drop in the ocean with regard to supply issues. Single-family homes and townhomes are still attractive to potential home buyers, and new builds in that direction are still required in the thousands in Kelowna real estate, just like the rest of the popular Canadian housing markets.

But keeping in mind the immigration path that Canada is currently on, it would need much more growth in all housing types and in all provinces to meet the real estate needs in the coming years as it cannot keep up with the current demand. Of course, affordability is still the number one reason people cannot purchase their own house.

Where are Okanagan prices going in 2023?

If we visit the housing prices growth over the last two years, one can see that the provinces with the highest climb are also experiencing the most significant drop in prices. British Columbia and Kelowna are no exceptions to these trends.

Sales of Okanagan houses are expected to slow over the next few years, but prices are not likely to fall drastically or crash. This spring, total home sales in the Okanagan fell 28.5 percent year-over-year, though the median price rose nearly 10 percent year-over-year to $785,600, according to BCREA. In the last three months, home sales have dampened and put pressure on the real estate market values – approximately 9.7 percent in Kelowna and Central Okanagan (according to Okanagan Real Estate Boards – OMREB and SOREB). However, prices are still up from last year at this same time. Next year, the British Columbia Real Estate Association expects a further 5 percent fall in sales, with prices falling 2.9 percent. 

In Kelowna, for example, only 9 percent of the population has an income of $200,00 or more and can afford to buy a home of over $850,000.

3 percent of people who earn $50,000 to $100,000 can qualify to buy homes for only up to $394,000. 25 percent who make under $100,000 can only be eligible for a house of up to $164,000. According to real estate agents in Okanagan, housing prices have moderated, but they are still not very affordable. A homebuyer household earning $71,000 (the median Metro Kelowna household before-tax income) can only get a $270,000 mortgage; they would still require at least another $100,000 in savings or a substantial gift for the down payment.


In review

According to British Columbia Real Estate Association (BCREA) Chief Economist Brendon Ogmundson, “Housing activity across the province is well below normal but is showing signs of stabilizing. While inventory is up over the last year, active listings have somewhat stalled at relatively low levels in most major markets, and as a result, we are seeing a healthier balance compared to last year.”

It must be noted that there is a lot of uncertainty and discussion amongst even the best analysts and economists as to the year ahead and where real estate is heading. The primary reason being this is a very different kind of economy that we are experiencing. Inflation is a global issue that every central bank is dealing with after two years of economic slowdown with the pandemic. The type of inflation plaguing the world today is a  never-before-seen kind, and there is a constant rising rate environment with an ongoing tight monetary and fiscal policy with no end in sight.

The question is for how long and how much will the central banks keep raising rates.

In conclusion

BCREA predicts a sharp decline in sales and that high mortgage rates will slow down the housing market until 2023. The Canadian Mortgage and Housing Corporation expects sales to slow as mortgage rates rise and prices rise in existing housing markets. 

The Royal Bank of Canada expects the combined reference price

to fall 2.2 percent nationwide in 2023 to $776,900, with a more pronounced impact on some of the country’s most popular real estate markets. However, all this does little to assist in housing affordability, which the end consumers face. Government stimulus over the last decade has pushed home values through the roof, pushing potential home buyers further away from their dream of owning a home. This, coupled with unrealistic stress tests and household incomes not keeping up with the inflationary trends, has pushed it even further out of reach.

The higher interest rates are still impacting affordability, and home buyers cannot qualify for mortgages. If there is any sign of interest rate relief from the Bank of Canada, there will be an immediate impact on the sales activity of the real estate market.

As Canada opens the doors for immigration again, expecting 1.2 million

people in the next three years, housing inventory needs to keep up with the strong demand. BC real estate must also keep pace with the inter-provincial migration, which Kelowna and interior BC continues to attract with the wonderful Okanagan lifestyle.

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