The basic economic principle of supply and demand will continue to fuel a red-hot real estate market across the Okanagan for at least the next six months, says the chief economist for the B.C. Real Estate Association.
Brendon Ogmundson says the anticipated increase in the base interest rate by the Bank of Canada is expected to cut into the housing price volatility to pre-COVID pandemic levels, but not until further into the second half of 2022.
He adds the rapid rise in house prices during the pandemic over the last 18 months has been both unexpected and somewhat mystifying but remains a common characteristic seen across the province, particularly in the Okanagan, Fraser Valley and Vancouver Island.
“B.C. remains a popular place for people to want to live. The only area of the province not affected by that phenomenon is the northeast part of the province,” Ogmundson said.
While the pandemic has generally created a negative economic impact across the country, the impact for real estate has been to accelerate housing prices.
Ogmundson says the driving fundamentals of that are retirees from larger urban centres like Vancouver or Toronto seeking the Okanagan lifestyle, a growing influence of people able to work from home and remotely from their office, and the impact of a family inheritance.
“I thought working remotely was something that would fade as we move past the pandemic but I think it is actually becoming more the norm as this pandemic continues,” he said.
“Things are going to look a lot different when we reach a new normal post-pandemic and I think working remotely is going to be one of those changes.”
He adds the largest shift of wealth from one generation to another in history continues to evolve as baby boomers retire.
“People are choosing now to help their kids financially rather than wait until they die, and the impact of that at this point is hard to calculate on the housing market at this point,” he said.
In the Okanagan, Kelowna specifically, also has the demographic dynamic of both young families and retirees converging on the area as a desired place to live.
“I was surprised back in 2018 and 2019 at how high housing prices were then in Kelowna and I am still surprised at the level we see today.”
According to Ogmundson, at the federal, provincial and municipal government levels over the last decade, there has been a failure to anticipate rising housing demand by encouraging more housing supply to be built, which has led to the current demand-supply imbalance.
“Governments can’t control the demand side of the market, but what they can do is encourage an increase in housing supply. The permit process for a new project can take a year or longer to get done, and the process that follows that means a development project takes three to five years to come to fruition,” he said.
“That is too slow to react to market changes and housing supply then has a hard time catching up to demand. One of the levers that government has is on the supply side, and I hear rumblings that the province is putting pressure on municipal governments to get things to market faster.”
For first-time buyers trying to enter the Okanagan market, Ogmundson says his best advice is to not try to forecast or prognosticate “where the market is going.”
“The economics of affordable housing is really difficult right now. Even if the land was for free, the cost to provide affordable housing remains a challenge,” he said.
“Don’t try to time the market. Find something you are comfortable with financially to get an entry point into the market, to start to build up some market equity, and you can live in for the next five years until the current cycle changes.”