Kelowna’s Real Estate Reverb
Fortune Favors the Bold
I believe that the next 1-2 years represents an exciting buying opportunity in Kelowna. I’ve said it before and I’ll go on record here to say it again - we are about to enter into an amazing economic and cultural era for Kelowna. We’re on the verge of this century's roaring 20’s.
In the meantime, enthusiasm has waned somewhat since 2018 due to negative global press and a sluggish real estate market. We feel that the prevailing emotion has swung from Greed to Fear, and most particularly in the housing industry.
This article explores the market influencers creating today’s buying opportunities, and the appropriate strategies to make the most of them.
We’ve seen a small price correction over the last 12 months, about 8% on average, but this is a broad, average figure. Different segments of the market have shown wide variances in performance.
The Luxury Market
Today the average home is selling at a 3.5% discount over the previous year, presenting buying opportunities across the board. But right now the very best opportunities are in the higher price brackets near 1 million, where executive homes are discounted closer to 10%.
Even if the real estate market slides further, you can protect yourself in the short term by bidding below asking, which provides a significant margin of safety. In a buyer’s market, you may be pleasantly surprised at how low some nervous sellers are willing to go.
Favorable Terms for Buyers
With the balance of power shifting from sellers to buyers, buyers now have the opportunity to negotiate fantastic terms with their deal. Sellers may be willing to consider carrying a mortgage, or perhaps look at more creative options such as agreements for sale or lease options. This is something that I began to specialize in during the global financial crisis of 2008-2009 which took our market out at the knees.
Moving on Up
When the housing market softens, it’s what we call a move-up market. It’s simple math: if the market comes down by 10% and you own a $500,000 condo, you would lose $50k in value. Meanwhile, owners of 1 million dollar homes feel a $100,000 pinch. That $50k difference in value is yours to exploit when you move up in the housing market.
While that was an overly simplistic example, the numbers could play out even better for move-up buyers because today’s market conditions are not caused by outward migration and a sluggish job market. Quite the contrary, local economic fundamentals and job growth are incredibly strong.
The Effects of Government Intervention
This current market swing is caused by government intervention - particularly the mortgage stress test, the speculation tax, and the foreign buyers tax. These policies have had the largest impact in the high end market.
Historically, the typical buyer of a million dollar property in Kelowna has either been a down-sizer from the lower mainland, or a wealthy Albertan coming here to retire or purchase a second home. The new legislation has impacted Vancouver’s high-end market so badly that we’re seeing significantly fewer people using the arbitrage strategy of selling in Vancouver and moving to the Okanagan – instead they are holding out and waiting for prices to bounce back.
At the same time, the provincial governments of BC and Alberta have created a rift in society over building new pipeline infrastructure. This political hot-potato, combined with the very punitive tax on owning a second home in BC, has convinced some Albertans to take their money elsewhere.
To further exacerbate the market, the new Federal Mortgage Stress Test has substantially decreased the buying power of Canadians. Under the new rules, the minimum household income required to purchase a home has increased by so much that most buyers have been completed priced-out of the luxury segment. These buyers are now searching for homes in the $450-600k range, where we’re seeing far more stable prices and stronger buying demand compared with previous years.
So what does all this mean for the average real estate investor? My advice is that if you have the inclination to increase your real-estate holdings, now is the time to do it. If the banks won't accommodate your goals today, try negotiating creative terms with the homeowner to carry some financing, or perhaps consider a trade.
Many baby boomers have serious equity in their house-on-the-hill, and are looking to downsize and simplify their lives towards retirement. A trade is a fantastic way to structure a move up deal. In today’s ‘down’ market there are a lot of new home builders that would love to trade for a rentable condo or townhouse so they can get out of their expensive builder’s mortgage. My firm specialized in trading during the 2008 recession and they were a win-win deal if ever one existed.
I want to reiterate that we’re going through a temporary market reverberation - not a full-blown housing recession. It’s my opinion that the market is presenting exceptional buying opportunities for those willing to be bold. The very best opportunities exist in the luxury property segment. If you’re willing to be patient and a bit creative, you may be able to get yourself one heck of a deal, and on unbelievable terms.
If you’d like more information on how to take advantage of the strategies mentioned above – whether it’s trading, agreement for sale, lease option, or vendor financing – I’d be glad to help you out. Please don’t hesitate to email me directly at [email protected]