This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
My final thoughts on real estate
This will be the last column I write on real estate. Largely because at the end of the year I will be handing in my license. After 20+ years of working in land development, resort development and real estate sales in general, I am moving on. It has been a great journey.
I was humbled by all the comments I received last week after my column, from both REALTORS® and the public and so I wanted to add a few more thoughts.
At least two news outlets ran such reports last week after they read the published report we discussed. Was the text misleading? On one hand yes, and on the other hand no. You see, the lawyers would have looked at it and said everything looks great, nobody is saying anything which isn’t supportable (except perhaps some overtly optimistic predictions). But the media and the public on the other hand is “hoodwinked” into believing their house values are likely to increase by 7% next year. Is that what was said? No. Is it what was received? Yes, in most instances.
The point last week was that many statements (as evidenced by the media reports) were taken out of context but nobody had attempted to put them in to context.
It is very common in real estate to talk about average house prices (or median house prices) increasing or decreasing. What does it mean to you? In the market we are in today, virtually nothing.
You could be confused into thinking next year for example, your house value is going to increase by 7%, after all, you read it in a report. Yet, it is not what the report said. The report indicated the average house price in Kelowna was going to move up 7% and will lead the country!
How are the two different? Let's say last month we sold 4 x $400,000 homes. A total of $1.6MM in real estate sales, average value is $400,000 per home. Well this month, we sold 3 x $400,000 homes and 1 x $500,000 home. Total sales value $1.7MM. Average house value $425,000. Wow, our homes have all gone up 6.25%, or have they?
Of course they didn’t, but every day reports are written to help you come to a similar conclusion. All it does is cause confusion for you and a difficult meeting for the REALTOR® at the listing presentation who then has to explain how your perception is not quite correct.
So onto the big prediction for next year. Will we see a 7% rise in values or average value? The answer IMHO is a resounding no. The Kelowna market is still very fragile. Our values are somewhere between 2007 and 2008 values, a long way off the mark from where we are today and it will take a long time to get there.
As I mentioned in last week's article there are too many economic parameters working against the housing market to see that recovery. Oil will absolutely soften the Alberta market although you may see a few execs take early retirement now. The dollar is not going to help us. The impact of US buyers in our Kelowna market is completely statistically insignificant. US buyers struggle with the concept of buying in the frozen north. If it were the opposite, Oroville would be a booming resort town like Osoyoos. I have executed large scale sales programs in Osoyoos when the dollar was weaker and there were virtually no US sales. Business in Kelowna is not good across the board, it is recovering, like the real estate markets. Some sectors are doing well and others clearly are not. As I indicated, far from being a benefit at the moment, recreational property is a thorn in our side until that market heals which will be a long way off.
In regards to oil pricing, my understanding of the situation is that light oil exploration may shut down/slow down but too much has been invested in heavy oil to pull out with a swing in pricing. The oil sands are very likely to keep moving ahead regardless of price... that does not mean they will run over here in droves to buy our real estate.
It is not all doom and gloom however. I do believe we are seeing signs of recovery. Let's face it, our transactions are up over last year, that is worth celebrating. Listing inventory is low precisely because people are not seeing the values on their properties' return and are unwilling to sell. I did some research this week looking at the change in values of properties. The only metric to use is similar type of real estate, similar price range, similar features and look at price per square foot values at the beginning of the year and the end of the year.
I looked at four regions and took the first three sales of the year and the last three sales of the year. I looked at the most active range in the market $400k to $500k. What did I find? Nothing exciting. Two regions had seen a very slight gain in per square foot values and two had seen a decline. The net result was a little nudge upwards if you looked at the average! What was interesting is most regions only had 15-20 sales in the year for that particular type and price range of property. A far cry from a busy market.
Next year, I would like to think that we would see increasing transactions and a general slow rise in values across the board. As far as I am concerned we will not be seeing high single digit gains in the real estate market for a long time. If we happen to, watch out... it might bite you where it hurts. What is the best metric for that? The buyer of your home... what are they willing to pay? No stats will tell you that and a professional REALTOR® is there to provide some history and context to their market appraisal.
There are many professional REALTORS® in Kelowna who will work hard to give you accurate information and assist you in marketing and selling your home. As usual your job is to develop a relationship with the one that you trust can do the job for you but there are plenty of examples of very good and productive REALTORS® in the Okanagan, choose wisely and you will get good counsel and at the end of the day with a little good fortune, the job will be done too.
The local Real Estate Board does a good job of providing ongoing education programs and managing the group affairs of the REALTORS® in the Okanagan. It has been a privilege to work with my colleagues in the industry but it didn’t mean that I couldn’t disagree with them from time to time!
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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.
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