Kelowna's housing crisis is just starting

The BC Real Estate Association's chief economist laid all his cards on the table right off the bat.

"2022 is a very, very different market," said Brendon Ogmundson.

"The economy has shifted. Inflation is back from the dead (currently 6.8% when it should be 2%), home prices are unaffordable, gas is $2.08 a litre and food prices are up 10%."

The economist's intention was to inform, not scare, the crowd he was speaking to at today's Kelowna Chamber of Commerce lunch at the Ramada Hotel.

But the facts and figures are frightening.

"In just three months, the fixed interest rate on a 5-year-term mortgage has gone up to 4.25% from 2.25%. And soon it could be 4.6% or 4.8%," stated Ogmundson.

"That's incredibly fast and it's all linked to inflation."

While 4.25% is still historically low, it's spooked a lot of people and it will reverberate through the housing market.

"We expect home sales will drop 30% to 35% over the next two years," said the economist.

"Usually house prices would also go down, but this is a different market and different time. There's such a supply shortage (of homes for sale, apartments for rent and new house, condominium and apartment construction) that Kelowna's house prices will likely just flatten rather than go down."

Ogmundson points out that all this is happening after a record-smashing year for both home sales and prices in 2021.

"Sales, while down, are still pretty strong and prices are unaffordable and likely to stay there because of the supply shortage," he said.

"Low supply keeps prices high."

What that means for Kelowna is while home sales of all kinds (single-family, townhouse and condo) dropped dramatically in April (30% to 508 sales), prices are still at record highs.

The benchmark selling price of a single-family home in Kelowna is currently $1.132 million, up a significant 27% from last year, a townhouse $754,200 up 21% and a condo $557,400 up 29%.

Of course, there could be a stagnation or slight dip in prices, but we haven't seen it yet and might not see it.

Ogmundson's advice to potential home buyers is always the same.

"If you plan to buy a house and live in it for at least the next five years, then anytime is a good time to buy because the housing market always finds a way to stabilize itself and eventually go up," he said.

The real solution to a balanced real estate market is complex and multi-pronged, according to the economist.

"BC needs to build more homes, faster," he said.

"About 70,000 units are under construction in BC, but we probably need twice that. Developers have to have incentives to build. Municipalities take way too long to issue permits for new construction and NIMBY is everywhere, so you can't build where you need to build. Density is part of the solution, so prices can stabilize as people have more options."

However, developers are hesitant to start projects right now because inflation and supply chain problems have jacked up the price of construction materials and there's a shortage of construction workers.

"That's another thing," said Ogmundson.

"We need to encourage students to get into the trades and we need more construction workers because 13% of the construction workforce is set to retire in the next few years."