From 2006 to the market crash of 2008 there was an increase in listings, an increase in unsold properties and a doubling of inventory. The emotions involved which drove the market and eventually killed it were; confidence (initially) which transitioned to fear and greed. Sellers can share in the responsibility because some listed just to see how much money they could make which added to the ballooning inventory. When panic buying takes place you are more likely to see the logical buyers move to the sidelines and wait for the smoke to clear. Once again the common fear was that housing prices would continue to spiral upwards to a point where some home buyers believed they would never be able to enter the market. (Interest rates were between 5% and 6%) After the purge the remaining serious buyers sat back cautiously waiting to see what would happened next. They weren’t spending while inventory was at a record high and so home prices began to fall. Confidence begins to return however there was a fear of buying too soon and watching equity disappear immediately after so buyers waited and values continued to slide. It took a while for confidence to gain momentum, some in 2009 but that was just a blip on the radar and it wasn’t until 2011 that the bottom was realized and the market moved forward. davidiverson.ca
So what is different today?
• Average number of new monthly listings – 1,072 which is 11% lower than 2008
• Average number of unsold properties – 276 a 68% drop from 2008
• Average monthly inventory – 2,820 a decrease of about 44% from 2008 levels
Although the emotions driving the market are similar between pre October 2008 and today, the dynamics are completely different. By October 2008 there was substantial oversupply whereas today the inventory is low compared to the number of listings and sales, and about 20% lower than 2015 averages. To make matters worse for buyers, the 2016 inventory has been decreasing month over month since March.
I think we will continue to watch values increase until such a point where buyers conclude the selling price doesn’t justify the product. (Keep in mind that didn’t work in Vancouver)
An increase in fixed mortgage rates followed by a claw back in the variable rate discounts could slow the market. Is this possible? Yes because the Feds have already said they are considering a push on government bonds. If the yield is attractive enough watch fixed rates follow. I don’t think the Bank of Canada will increase the overnight rate but there is an advantage to banks discounting their variable product, they can take it away whenever they want. Spring and summer is a very competitive time of year for Lenders and I wouldn’t normally expect any drastic changes during that time but a seasonal change is almost here.
It is possible there could be a rise in foreign investment because of the 15% property transfer tax recently levied in Vancouver. That could increase competition on the homes available in the Okanagan and if investors had enough funds for Vancouver I don’t think they will be too concerned about overpaying here. davidiverson.ca
Conclusion: CURRENTLY NO BUBBLE
I believe we can expect to see values rise or at least hold for the immediate future due to not enough supply for a reasonable and so far not unusual demand.
Check out Kelowna Okanagan Housing Bubble? Part 4 Statistics
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