Are House Prices Going to Drop?
The number one question I am hearing recently is, “Are house prices going to drop because of these new mortgage and tax rules?” First, I don’t know for sure, but based on what I see in the market and the actual stats, not the headlines, I think the market will definitely slow but not drop. Let’s remember, last year was the best year ever in the history of the Central Okanagan Real Estate Board. Yes, we are down from an absolutely crazy year but we are still having a very good year and though the number of sales is down, prices are up. We can’t continue to have 15 to 20% price increases every year, it just doesn’t work. If we get back to 3 to 5% annual increases people can continue to afford to join the market.
What I look at to gauge the markets are the supply and demand numbers. Where are buyers coming from and how much product is available for them to buy. Too much supply compared to buyers drives prices down (2008). Limited supply and lots of buyers drives prices up (2017). Last month all housing segments (condo, townhouse, single-family etc.) had 3 to 5 months worth of inventory, meaning if no new homes came on the market we would be out of listings in less than 5 months. Back in 2007 before the last market drop, all housing categories had double-digit inventory numbers (condo’s had 22 months at one point) so today supply is comparatively very low.
On the demand side, roughly 2/3’s of buyers still come from the Central Okanagan region and the other 1/3 is made up of buyers largely from the lower mainland and Alberta. Let’s face it the weather in Alberta sucks compared to the Okanagan so why wouldn’t you move? The lower mainland is still much higher priced and people continue to cash out and relocate in the Okanagan. Companies are doing the same thing as they have access to younger skilled workers who can’t afford to live in Vancouver. So demand will likely continue for the foreseeable future.
Think like billionaire Warren Buffet, when people are reading the headlines and making rash decisions, do the opposite!
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