The Current State of the Okanagan Real Estate Market Amid Economic and Policy Shifts

The Okanagan real estate market is navigating a complex landscape shaped by public policy changes and economic factors. In the third quarter of 2024, there were 2,086 home sales in the region, amounting to $1.6 billion. This represents a modest 1.4% increase in transaction volume and a 2.2% rise in sales value. However, monthly sales have consistently fallen below the 10-year average throughout 2024, with some months reaching near-decade lows.

Economic pressures and residual concerns from the summer’s wildfires deterred visitors, leading to a shorter tourist season and fewer bookings for short-term rentals. This impacted the tourism-dependent economy, causing a noticeable drop in visitor numbers, particularly affecting the hospitality sector. The BC Hotel Association expects a tough year ahead, with mixed occupancy rates and declining room prices in regions like Kelowna. The slowdown in tourism is not only affecting the local economy but also the real estate market, as many visitors become potential buyers after experiencing the area.

The summer market leaned in favour of buyers, yet opportunities for negotiation remained limited. Home prices are still elevated, at 40-60% above pre-pandemic levels, though they’ve declined 10-15% from record highs seen two years ago. Sellers remain firm on pricing, resisting significant reductions. This has contributed to a surge in active listings, reaching the highest levels since 2015, with 6,568 listings recorded in September—an increase of 31.2% from the previous year. Despite this, many homeowners are not facing financial distress; they either have lower mortgage rates or have paid down significant portions of their loans, allowing them to hold onto their properties.

A notable issue is the mismatch between demand and available inventory. In Q3 2024, over half (55%) of home sales were priced below $700,000, but only 39% of listings fell within this range. Meanwhile, homes priced above $1 million made up 36% of listings but only 18% of sales. As a result, affordable homes are scarce, leading to competitive bidding for entry-level properties. Developers face challenges in addressing this shortage due to high land costs, complex regulations, and the recently introduced Building and Energy Codes, which raise construction costs and limit profit margins. Consequently, some builders are holding back on selling near-complete homes, waiting for more favourable market conditions.

In response to the housing market issues, the BC government has implemented policies to increase supply. As a result, new listings for vacant homes in the Okanagan rose by 36.7% year-over-year in Q3 2024, reaching 1,138. By September, there were 1,414 vacant homes on the market, marking the highest supply since 2013. Notably, vacant homes are, on average, 21.7% smaller than occupied ones, which may reflect varying demand between buyers.

Amid economic concerns, the Bank of Canada cut its policy interest rate by 50 basis points in October, bringing it down to 3.75%—a significant move aimed at stimulating the slowing economy. While this rate cut is anticipated to improve buyer confidence, Canada’s productivity issues remain challenging. Additionally, the federal government has introduced mortgage reforms effective December 15, increasing the price cap for insured mortgages to $1.5 million and extending 30-year amortizations to first-time homebuyers and all buyers of new builds. While these changes may benefit some, many families will still face barriers to affordability without additional financial support.

The outlook for the Okanagan housing market remains cautious for the remainder of 2024. While lower interest rates could improve buyer sentiment, external factors like geopolitical conflicts and political uncertainty may temper activity. A resurgence in real estate activity is anticipated in spring 2025 as interest rates continue to fall and both buyers and sellers adapt to recent policy changes.

Source: Association of Interior Realtors, Q3 2024