Retirees and the upper middle class slowed Kelowna’s real estate crash; rebound predicted

Retirees and the upper middle class slowed Kelowna’s real estate crash; rebound predicted

 
By Kathy Michaels
Kelowna’s real estate market is showing signs of stability despite continued economic tumult nationwide, but as this year comes to an end, local home values will have dropped while other B.C. cities post gains, according to the RE/MAX Housing Market Outlook for 2010
“It’s a unique experience this time around,” said Elton Ash, the regional executive vice president of Re/Max Western Canada. “In 2008 the real estate market was strong in the first six months and there were double digit price increases. Then in the last quarter there was a 20 per cent decrease … so all in all when you took the first part with the end of year  it was zero effect. This year the price decreases continued into  2009, but now we’re seeing the market strengthening and that’s all in three to five per cent decrease.”
While stability was the focus of the report, Ash noted that other B.C. cities like Vancouver and Victoria did see gains on par with this region’s losses. That, he said, can be attributed to Kelowna’s economic base which is less diversified than a larger urban centre. When Vancouver and Victoria hit a bump, it’s never as dramatic as it is in the Okanagan.
“This is historically the trending,” he said. “Kelowna sees a greater price depreciation when the price changes… it’s not surprising.”
What seems to have saved the region from further losses, he said, is the population composition and how they reacted to the crash last year.
“Being a retirement destination, with a lot of upper middle income earners, the equity to loan ratio is higher,” he said. “So when we experienced the price drops from a year ago, people decided they wouldn’t sell.”
In the first quarter of this year, those who were initially looking to sell pulled their houses off the market and that kept the inventory low. When supply was diminished it drove prices up again and first time buyers started to eat through the supply that remained. Their demand combined with a little less supply lessened the downward cycle of prices and brought the market to more balanced conditions.
That’s helping put Kelowna in good stead for 2010. In the Market Outlook report, 23 other major markets were also examined and this city was highlighted as an area that will see growth in the year ahead. What’s expected to be a 10 per cent increase in sales volume will put upward pressure on pricing and Ash said he expects to see the average price of a home rise to $438,000 next year from an estimated high of $417,000 by the end of this year. At the end of 2008, the average house price was $430,000.
“The important thing is that Canadians are confident in the economy and the banking system, and that’s driving quicker recovery,” he said. “The economic fundamentals in place going forward ideally position the ten provinces, and the sector overall, for further growth.”
A number of factors will help prop up activity going forward, including improved economic conditions, continued low interest rates, rising consumer confidence and solid capital spending which will buoy employment. Inventory will once again assume the wildcard role, with any decline placing upward pressure on prices. Multiple offers will remain the exception in most markets, more commonplace on quality entry-level product which remains in tight supply.
The report found that sales are forecast to recover in almost all major centres by year-end 2009, led by an anticipated 45 per cent increase in Greater Vancouver. Two markets —Ottawa and Quebec City —are expected to hit historic highs in the number of homes sold. Average price should post new records in 65 per cent of markets surveyed this year. As economic performance ramps up across the country, so too will residential real estate.  Eighty-three per cent of markets (19/23) are expecting sales to increase over 2009 levels while housing values are forecast to escalate in 91 per cent (21/23) of Canadian centres in 2010.  The remaining markets will match 2009 levels.