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Is Kelowna Okanagan In a Housing Bubble?                    Part 1


In my profession as a Mortgage Broker I am continually asked what I think about the current state of the real estate market in Kelowna (Okanagan) and where it is headed. With years of experience under my belt I have yet to meet anyone who has accurately predicted the peaks and valleys encountered in the housing sector. That being said I have insights that are undisputable barring any abrupt catastrophic event such as natural disaster, war, epidemic etc.
Back in the fall of 2015 I was at a gathering of real estate industry professionals; Realtors, Bankers, Appraisers, etc, and the question was, “what is driving the market”. Our guest head table banker explained that the residential market, (specifically single family dwellings) was responsible for increased sales and cash flow in the real estate sector. Although I won’t dispute the numbers when referring to what is actually selling, I disagree with what is “driving” the market. There is only one answer to that question and it is “supply and demand”. That is an easy answer to a complex subject so I will explain the reality behind it.

I have broken the purchase of real estate down into two logical and three emotional factors:

Logical – Employment and Need

1) Employment – This is by far the most influential statistic that will create a rise or drop in real estate values in a standard real estate market. (Leaving Vancouver and Toronto phenomena out of the discussion) When employment is on the rise and continues to build with more Canadians at work earning money the economy thrives. That is a fact. When people are working and the economy is good, it is a normal progression for this sector to want home ownership at some point. This creates demand.

2) Need – Although not as noticeable as employment, there are situations where people are transferred through work or have to move for medical or personal reasons. There are a myriad of possibilities, but if they had to vacate one home there is a natural expectation that they will also want a home in the new location where they will live. This is demand.

Emotional – Confidence, Greed, and Fear

1) Confidence – Can be a by-product of employment. Face it, when people have steady work with good income and there is consistent statistical proof that the economy is doing well, those who are employed begin to realize the value of home ownership.

2) Greed – When the economy is steadily growing and real estate values are on the rise that opens the door to speculators / investors. Their involvement is purely to make money off the increase in housing prices and or the increase revenue of rental income.

3) Fear – When housing prices increase there is a percentage of the population who believe those prices will continue to rise to a point where home ownership becomes impossible. Panic sets in and they go to extraordinary measures in which to secure a mortgage. For this group interest rates, to a certain degree seem irrelevant. Case in point; 2007 and spring / summer 2008 I witnessed potential home buyers climbing over top of each other in order to purchase a home when the 5 year fixed rates ranged between 5% and 6%. This isn’t the case today however in this situation when interest rates became secondary the motive wasn’t based on necessity or logic.

So where are we now? See: Kelowna Okanagan Housing Bubble? Part 2
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