Are higher interest rates killing demand in the Kelowna real estate market?

While industry observers are paying attention to the Canadian housing market and trying to determine how much rising mortgage rates – they clocked in at around six per cent in August and September – are impacting sales activity and prices, it is the local markets that could tell a better story of what is currently happening in the real estate sector.

During the pandemic-era housing boom, stockpiles had been shrinking. Since then, however, Kelowna has witnessed improving inventories. The challenge for homeowners has been that lacklustre sales activity, coupled with improving supply, has led to falling prices. At the same time, this is an opportunity for prospective homebuyers to take advantage of easing conditions after such intense volatility over the past few years.

Whatever the case may be, sales have slumped for the three main property categories in the Kelowna housing sector: single-family homes, townhomes, and condominiums.

If demand is falling, are prices responding by dropping as well? It is a bit of a mixed picture.

A Look at the Kelowna Real Estate Market

In October, the headline numbers pointed to a cooling Kelowna real estate market. A deeper dive into the figures provided a bit more of a complicated situation for industry observers. The best thing one could say about the central Okanagan part of British Columbia is that the housing sector has stabilized and is trying to navigate the present rising-rate climate.

According to the Association of Interior REALTORS®, residential property sales plummeted more than 14 per cent year-over-year in October, totalling 228 units.

The average sales price for a home in the Kelowna real estate market slipped at an annualized pace of three per cent to below $786,000. However, the median sales price climbed about four per cent to top $667,000.

Active residential listings maintained their upward trajectory, ballooning more than 20 per cent to firm above 3,100, association data show.

Now, here is a breakdown of the three residential property categories in the Kelowna housing sector:

Single-Family

  • Residential Sales: -25 per cent to 116 units
  • Average Price: +0.1 per cent to $1.094 million
  • Listings: +20 per cent to 480 units

Townhome

  • Residential Sales: -11 per cent to 42 units
  • Average Price: -9 per cent to $710,740
  • Listings: +29 per cent to 157 units

Condominium

  • Residential Sales: -29 per cent to 72 units
  • Average Price: -10 per cent to $531,634
  • Listings: +10 per cent to 218 units

Housing construction activity has slowed compared to a year ago, but it still remains robust. According to the Canada Mortgage and Housing Corporation (CMHC), housing starts slowed 33 per cent year-over-year to 168 units in September. In the first nine months of 2023, housing starts tumbled 15 per cent compared to the first nine months of 2022, totalling 2,135 units.

Interest Rates and Home Sales in Q4

In the broader British Columbia real estate market, the current rising-rate environment will weigh on sales activity in the fourth quarter, says the British Columbia Real Estate Association (BCREA).

Residential property sales are expected to decline nearly five per cent in the October-to-December period, totalling fewer than 77,000 units. However, home sales are forecast to rebound in 2024, rising 4.8 per cent to above 80,000 units.

“Activity in the BC housing market has mirrored movements by the Bank of Canada over the past two years,“ said Brendon Ogmundson, the chief economist at the provincial association, in the report. “As such, there is little reason to believe that sales will meaningfully detach from the anchor that is monetary policy over the next year. Thankfully, it appears that the Bank is at, or at least very near, the end of its tightening cycle and may begin lowering its policy rate late next year.”

The lone bright spot is that housing inventories are increasing, with new listings activity normalizing in the second half of 2023. Additionally, slowing home sales throughout the year have bolstered the level of supply seen throughout the BC real estate market.

Ultimately, conditions could balance out heading into the fresh calendar year. At the same time, this will weigh on prices as they are anticipated to record a 1.9 per cent annualized drop this year. But a tepid rebound could be witnessed in 2024.

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