Concerns about the current state of our Kelowna Real Estate Market continue to be the source of dinner-table conversation.
My thanks to Chief Economist, Brendan Ogmundson of the BC Real Estate Association who has just released his Fourth Quarter Real Estate Forecast.
This report covers MLS® home sales in the Thompson-Okanagan region, which is serviced by our own Okanagan Mainline Real Estate Board, South Okanagan Real Estate Board and Kamloops and District Real Estate Association. At present we are on pace for a third consecutive down year as the markets absorb the impact of the B20 stress test and the provincial speculation tax.
Recent Trends & 2020 Forecast Sales Numbers.
Like most markets around the province, home sales in the Okanagan Mainline and South Okanagan struggled in the first few months of the year, as rising mortgage rates compounded the negative effects of the stress test. However, a rapid and substantial decline in Canadian mortgage rates helped spur a recovery in the late spring that has sustained into the fall. Because of the slow start to the year, sales in the Okanagan Mainline are projected to fall 1.4 per cent in 2019 to 7,300 units, while sales in the South Okanagan are forecast to fall 9.3 per cent to 1,710 units.
In contrast to the Okanagan, home sales in the Kamloops area have been trending lower for much of the year. However, as a more affordable region, home sales in Kamloops were not as hard hit by the B20 stress test and therefore do not have as much ground to make up in returning to a normal level of sales activity.
Along with lower mortgage rates, housing demand across the region has been getting a boost from strong local economic conditions. The unemployment rate in Kelowna and the wider Thompson-Okanagan development region has been trending lower since mid-2018 and has even fallen below the provincial unemployment rate in recent months.
Alberta Buyers Numbers continue to fall.
While local fundamentals are strong, the region also relies on demand from Albertan buyers, both for recreational and retirement property. In the Okanagan Mainline region, sales to Albertans have historically composed up to 20 percent of total sales. That source of demand has been softer in recent years due to a number of factors, most prominently the struggling Alberta economy and the levying of a speculation tax on out-of-province buyers in 2018.
The share of Canadian buyers from outside of BC fell from nearly 25 per cent in 2014 to 15 per cent in 2016 following the crash in oil prices. That share has since fallen to around 12 per cent following the imposition of the speculation tax in Kelowna and West Kelowna.
Baby-Boomers & Millennials should help push Sales in 2020.
Although current tax policy and mortgage rules are a drag on demand, the favorable regional demographic factors supporting housing demand from both millennial households and retiring baby boomers should translate to strong home sales in 2020.
2020 Forecast Sales Numbers
BCREA are forecasting 2020 MLS® sales numbers as follows -:
Okanagan Mainline board area to rise 4.1 per cent in 2020 to 7,600 units.
South Okanagan, expect a 5.3 per cent increase in MLS® sales in 2020 to 1,800 units. Kamloops and District board area, they are projecting sales will reach 3,050 units, an increase of 5.2 per cent.
On the supply side, the inventory of listings in the Okanagan Mainline and South Okanagan were accumulating throughout most of 2019 but seemed to have plateaued in the spring months as demand recovered. However, significant new construction around Kelowna and Penticton in recent years, combined with softer demand, has led to rising inventory of new homes. The total number of new units completed but unabsorbed into the market now sits at its highest level since 2012.
Markets Forecasted to Balance-Out & Modest Average Price Rises
As demand stabilizes around its long-run average, markets should fall into relative balance, leading to price growth that’s in-line with inflation. For that reason, we are forecasting the MLS® average price in the Okanagan Mainline area will rise 1.6 per cent in 2020 to $540,000, while the MLS® average price in the South Okanagan will increase 1.8 per cent to $437,800.
Improved Inventory in Kamloops should stem Rising Prices.
In contrast to the Okanagan, the Kamloops area remains deeply under-supplied. Total listings in Kamloops peaked in 2012 at over 2,000 total listings but have trended at half that level for the past three years. As a result, market conditions in Kamloops are very tight, as reflected by a 30 per cent increase in the MLS® average price since 2014.
Fortunately, the pace of new home construction in the Kamloops region has ramped up in recent years and those units are now completing, adding much-needed housing supply to the region. As supply gradually increases, we expect price growth in the Kamloops region to slow from its current elevated pace of 7 per cent in 2019 to 1 per cent in 2020.