Has the Housing Bubble Burst?
Has real estate in the Okanagan peaked?
The surge in housing prices is an interesting and controversial matter. Toronto and Vancouver are constantly in the spotlight as housing prices surge without much explanation. Macleans reports that population growth is not driving prices, and that “nothing justified Toronto’s skyrocketing house prices”. Vancouver has seen a peak housing price index in 2016 with a sharp drop double digit drop starting in 2017!
Here we are in 2017, you may have heard speculation that housing prices will drop. It appears that many Canadian are uneasy about the situation, Google searching for “housing bubble” are at a record high in 2017, over 4 times higher than the previous 5 year peaks.
What are the conditions for the housing bubble to pop? Investopedia summarizes the condition as a decrease in demand and an increase in supply. This can be caused from an increase in interest rates, a downturn in the economy, or an exhaustion of demand. If mortgage borrowing becomes harder, and speculators begin to leave the market, there is likely to be a recourse.
Vancouver has seen the start of a downturn, with sales being down 40%!
According to the Okanagan Mainline Real Estate Board’s (OMREB) current statistics, Kelowna sales volume is down 19.98% from this month last year. January started off 36% above January 2016, but quickly dropped to nearly -20% by April plotting sales in 2017 compared to 2016 shows the Central Okanagan is following the same trend as Vancouver, with a short lag.
Data Source: Okanagan Mainline Real Estate Board
We are seeing a decrease in sales, yet and increase in prices with the average Central Okanagan home climbing from $465k to $502k. This is alarming and fuels the conditions for a housing bubble to burst. Increasing prices means it is harder to get approved mortgages, plus double digit decrease in sales shows demand is declining, fast!
Another interesting statistic is in OMREB’s April summary, business zoned sales volume in Central Okanagan is down 98.76% and total commercial sales down 23.46% YTD.
CMHC report show that we are also seeing lots of housing starts, with 1,520- 1,780 starts in Kelowna expected through 2017, 800 – 1,070 being multiple resident buildings. With 2017 MLS sales projected to be 5,520 – 6,290 units, approximately 25-30% of sales will be new construction. It is also predicted that more housing will become available with construction now occurring at a faster rate than the Okanagan’s population growth.
In 2017 we may see a continued decrease in demand, and properties in demand may be newly constructed properties. Is this the start of the bubble bursting? Not necessarily, but the conditions are there and the general population seems to be on edge. Current housing prices really don’t make sense, when you look at the materials cost compared to the speculated property valuation, it doesn’t make sense. Everyone needs a home to live in, it is a needed commodity. For property investors and speculators, the risks are increasing. 2017 may be an interesting year, sit back and watch!
If you are unsure what to do, renting is always a low risk option. Happipad can help you with that!
This post was written by Happipad