What Does a Hike in Interest Rates Mean for the Kelowna Real Estate Market?

What Does a Hike in Interest Rates Mean for the Kelowna Real Estate Market?

The Bank of Canada has Done it Again

Here we are on September 6th of 2022 staring yet another interest rate hike in the face, yes the Bank of Canada has increased rates again by 75 basis points.

In the event you've been living under a rock the last 8 months, this is being done to try and get inflation back to their bench market rate of around 3%. 

We are currently at just over 7% down from a 40 year high of over 8%.

Now before you go and lock in that mortgage (the banks are pushing you towards this) at 5.14% or 5.49%, think about where we are and where we are headed.

Below is a graph of historical interest rates compared to the Bank of Canada overnight lending rate, have a look and see what's happened over the last 15 years.

It's Almost 2007 all Over Again

If you look at the peak between 2000 and 2010 you will notice that rates peaked at just over 6%.

We haven't hit that mark yet but there's a good chance that we will.

Here's why.

Look at the drop in rates right around 2008 and all the way to 2021, why did rates drop to almost nothing?

One word, recession. The 2007-2009 housing/financial crisis in the US had a massive impact globally, Canada did not escape this at all. 

Housing and our economy were affected and we did wind up in recession. So what do central banks do when there's a recession?

They drop interest rates.

Why? To get you, as a consumer, to get out and buy things like cars and houses and boats. You know, the things that you finance.

We didn't see an increase in rates until this year because inflation was way up.

With a recession looming in 2023, and hopefully inflation falling back to manageable levels, there's a good chance that we see rates begin to ease off and likely start to go back to 'recessionary' levels.

All of that said, we are likely to see this as the peak of higher rates with the 'bottom of the market' in terms of pricing (in British Columbia as a whole) peaking in the Spring of 2023.

Where are Prices Right Now?

Believe it or not but prices in the Central Okanagan are up for all property categories including townhomes, single family and apartment style condos.

When you listen to the media, they always talk about SALES when they talk declines and yes, sales are most certainly down but compared to what?

Compared to 2021?

Of course sales are going to be down compared to 2021! Last year set records in the Central Okanagan in terms of sales and price increases for every sector of the market.

The Canadian average is about 400,000 moved per year and that is where we are trending towards right now, so yes, sales ARE down to the tune of about 30% but we are getting back to some sense of normalcy.

Where is the Kelowna Real Estate Market Headed?

My crystal ball has never really worked, but let me put it to you like this...we in a balanced market right now and I do see us moving to a bit of a buyer's market into the Spring of 2023 if interest rates don't correct.

The average days on market right now is sitting firmly at 46 (average of all segments).

Inventory levels are up over 100% in all segments and demand has been tapered due to rising interest rates. 

There is still a serious lack of inventory in this part of BC and that will continue as they just aren't 'making' anymore land. Where are builders able to build? there are only a couple of communites (Wilden, Black Mountain to name two) that have new construction opportunites.

Will those two communities continue to feed the demand?

Likely not. 

This is why I am still very bullish on the Central Oakangan market, because we have a shorted of land that can be developed and not everyone wants to live in a condo.

It's time to stop listening to the sexy numbers put out by the media and to start talking to your Kelowna Real Estate Professional about what is taking place in the market.


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