What Can We Expect for the Future of Our Market?
Today I’ll share an update on the market as well as my predictions for 2021.
We’ve had the busiest fall on record this year, with over 700 sales per month. That’s roughly double the pace we saw at the same time last year. As a consequence, listings are very low; we’re down to only 1,400 active listings, which, compared to the typical 2,000, is a very tight inventory. Low inventory creates upward pressure on price in our tight seller’s market.
This time last year, we had a sell-through rate of 40%, meaning that over two months, the sales added up to roughly 40% of the number of active listings. Contrasting that with 2020, our current sell-through rate is 101%. This is the first time I’ve ever seen a two-month sell-through rate over 100%. To put it another way, we currently have about two months of active inventory, which is the lowest inventory rate we’ve had in 10 years.
The single-family market is a major driver, as people are looking for more square footage and more properties. As I’ve reported before, housing activity is up by 86%, and the average home that's selling is 10% larger, which happens to be around the size of a badly needed home office or gym. Since single-family homes are taking center stage, the average transaction value is up by nearly $100,000 compared to this time last year.
The overall sales volume for the past two months was nearly $1 billion, which is unprecedented—last year, it was in the $470 million range. That’s a lot of proceeds that will find their way back into the local economy since dozens of ancillary businesses benefit directly or indirectly from a home sale (service providers, contractors, local retailers, etc.).
If you’re a homebuyer, you may not see this as good news. If you’ve been on the sidelines for just three months, you’ll have seen the price of an average single-family home in Kelowna jump by nearly $40,000. If you’ve been on the sidelines since before the pandemic, you’ve seen that price jump by nearly $70,000.
Now, given the tight inventory, homes are selling faster and closer to list price, with many properties going into bidding wars and ultimately closing for over list price. On the whole, the average discount in the last six months has shrunk by $10,000.
As a buyer, maybe you’re thinking that you’ll just wait it out—this is a bubble that will pass. Well, you could be right; there are some uncertainties on the global, federal, and even regional level that support your logic, but let’s analyze what we can see before us today and then make an educated guess on what the next 12 months will bring. 2020 will be remembered fondly by Realtors, as luxury sales went through the roof, and overall sales jumped by over 70%. Now that we’re well into the fourth quarter, things aren’t really slowing down. The question on everyone’s mind is: What does 2021 have in store for us?
"My prediction for 2021 is that we’ll have a very robust year in real estate."
I was fairly bearish on the post-COVID market six months ago. I expected to see demand just fall off a cliff once the bottleneck of buyers who were displaced from the early spring market had finished their plans. But the market proved me wrong. I hadn’t predicted the behavioral shifts brought on by COVID-19; suddenly, workers from all over became untethered from their offices, which caused many people to rethink where they called home. People who endured consecutive months living in tight quarters in a city center began to question their urban existence and went out looking for greener pastures and more elbow room. Many homeowners living in the lower mainland made the decision to cash out and seek a less populated area that offered relative affordability and the same four-season lifestyle they were used to.
The behavioral shifts that were set in motion by the global pandemic will have a lasting impact on buying decisions and will continue to funnel people into the Okanagan. I see the demand remaining very strong throughout 2021 and beyond. That, combined with record-low interest rates, will generate enough sales activity to keep our inventory down in seller’s market territory. The market will face some headwinds, however. As single-family homes had the largest price jump, the entry-level property has been pushed out of reach for many. Combined with strict lending environments, that will keep many homeowners or would-be homeowners on the sidelines in 2021.
Another challenge we face is the small business economy that has been battered and bruised by consecutive lockdowns and social distancing protocols. The impact on our local job market is still unknown, but it is likely to play out in 2021. On that note: Let’s all support our local businesses to keep them afloat. Nothing could be more important to our community than that.
That brings us to the potential foreclosure crisis that many people are talking about. Roughly 3.7 million borrowers in Canada are still in government or private-sector forbearance programs, which is about 7% of all active mortgages. Barring further government support, which I believe we will get, experts predict that serious delinquencies could be on the horizon. However, I doubt that we’ll see many foreclosures because people have gained so much equity in their properties that they’re more likely to just list their homes and sell them in the one year they have between delinquency and officially being foreclosed on.
In conclusion, my prediction for 2021 is that we’ll have a very robust year in real estate with some excellent growth opportunities in higher-end single-family homes, recreational properties, and agricultural land—all new trends that were brought out by the pandemic. A very strong rental market with low vacancies will keep upward pressure on rent and keep investors’ cash flow positive through 2021. As far as home prices, we can expect another year of healthy, single-digit appreciation.
If you’re thinking about selling your home, now would be a great time to start. Don’t hesitate to give us a call; we’d be glad to help you determine your home’s value and help you begin the process of getting it sold for the most money possible.