With our ever changing Real Estate Market in British Columbia, Buyers and Sellers are continuing to keep an anxious eye on what is to come during the next year.
There's no doubt about it the B 20 stress test on Mortgages, has had a dramatic effect on housing sales, and many agents, including myself, are seeing deals collapse due to Buyers being unable to obtaining Financing.
This is one of the reasons we are seeing an increase in Demand for homes with suites to provide that valuable added income which will allow some local buyers to buy homes normally out of their price range.
The latest BC Real Estate Association Forecast is now published, and here are the details that effect Kelowna and the Central Okanagan Area.
MLS® home sales in the Thompson-Okanagan region, which is serviced by the Okanagan Mainline Real Estate Board (OMREB), the South Okanagan Real Estate Board (SOREB) and the Kamloops & District Real Estate Board (KADREA), fell a combined 17 percent in 2018 and home sales across the region continued to struggle under the weight of provincial and federal policies as well as higher interest rates.
Canadian mortgage rates rose over 100bps from their lows in 2017 to where they eventually peaked in 2018 as the Bank of Canada embarked on an interest rate tightening cycle. The impact of higher interest rates, compounded by the stress test, played a significant role in stalling an early recovery in home sales in the summer of 2018.
Now that the Bank of Canada has been forced to the sidelines by a slowing Canadian economy, Canadian mortgage rates are once again moving lower. That should make the hurdle of qualifying under the stress test a little easier, providing a boost to sales in the second half of 2019.
In addition to contending with tighter mortgage rules, the Kelowna CMA is also subject to the Province’s speculation tax on out-of-province buyers and vacant homes, while neighboring markets in the South Okanagan and Kamloops are not. While the degree to which the speculation tax is holding back home sales in the OMREB region is not clear, or at least is not immediately noticeable in relative market trends between tax and no-tax markets, it does seem to be having a significant impact in the new-home market. The speculation tax disrupts historically important market dynamics in Kelowna, where out-of-province buyers compose a significant share of the market. That share has been falling in recent years due to economic conditions in Alberta, but now could fall further due to the presence of the speculation tax.
As we have pointed out in the past, without those buyers, a large number of new units under construction in Kelowna may have trouble selling, leading to a build-up of new home inventories. That scenario could be playing out right now as inventories in Kelowna build due to a flood of new completions in recent months.
Absent of the impact of policies, regional home sales would likely be higher given the strength of the regional economy. The regional unemployment rate has been falling steadily for the past year, driven by strong full-time employment growth, particularly in Kelowna. Moreover, demographic projections imply a coming boost in housing demand from both millennials and retirees. Those fundamentals should translate to a recovery of MLS® home sales, beginning in the second half of 2019 and through 2020. We are forecasting an 8 to 10 percent decline in unit sales in OMREB and SOREB this year followed by a 9 percent rise in sales next year.
In the Kamloops area, we expect sales to dip about 3 percent in 2019, followed by a 5 percent rise next year. Home sales returning to a level more in line with historical averages will help to stabilize market conditions at a time when supply is rising. The inventory of homes for sale is up significantly in both the OMREB and SOREB areas, which has put some downward pressure on home prices to start 2019. That is particularly true for the condo market in Penticton, which has seen prices trend down more than 10 percent in the first quarter of 2019.
In contrast to the Okanagan, home prices in Kamloops rose steadily in the first quarter of 2019 and supply in the area remains very low. That may change over the next year given the significant number of units under construction and due to complete soon.
With demand projected to recover in 2020, and supply of both resale and new homes set to rise, markets in the OMREB and SOREB area will trend towards balance. That will translate to minimal change to average prices in 2019 and 2020.
In the more supply constrained Kamloops market, we expect the MLS® average price to rise about 5 percent in 2019 to $411,000 and a further 1.5 percent in 2020 as rising supply brings the Kamloops market into balance.
Thanks go to Cameron Muir, Chief Economist for the BC Real Estate Association, and his Team for this latest update.