To those living in the Okanagan, it will come as no surprise the area’s real estate market has changed drastically over the last year. Density is increasing, buyer dynamics are changing, and development is skyrocketing. Taylor Musseau, managing director and partner of MLA Canada, Okanagan, outlines what homebuyers should know about the state of the current market and why pre-sales homes will be increasingly on a buyer’s radar in the coming months.
The past 12 months have seen quite a dramatic market shift. MLA Advisory noted absorption was down 31% from August 2021 to August 2022, meaning there are more homes available for sale and they are selling drastically slower than this time last year. The rise in interest rates has caused the market to slow down and has decreased buyer purchasing power. Musseau is seeing a shift towards lower priced homes that were previously absorbed primarily by investors.
“In this setting, we are seeing that homes priced over $1 million are tending to sit on the market longer,” Musseau shares. “Homes that appeal to price-sensitive buyers are the fastest moving sector of the market across the Okanagan.” Homebuyers who intend on living or vacationing in their home are having to shift their wish list towards more affordable options, which can often mean less square footage or looking outside of their preferred neighbourhoods.
The Okanagan was formally known as a place for the young families and retirees; this has changed dramatically over the last decade. In Musseau’s opinion, the types of homes that need to be built must also evolve to accommodate the changing demographics of the area. Aging retirees are increasingly looking to relocate, and young families continue to move in. With this year's approval of the UBC Okanagan downtown campus, there is going to be a major influx of students.
“The Okanagan is already drastically short on student housing, so we expect to see more small format homes coming to market to satisfy the need for student housing as well as provide homes for homebuyers trying to break into an increasingly difficult market,” Musseau says.
The Okanagan is now the third largest tech sector in the province, and the city itself is the fastest growing metropolitan area in Canada. “Tourism has always been a major economic driver here, but the city has really broadened who it's attracting, and that is shifting the types of homes being built,” Musseau explains. In line with the Kelowna 2040 Official Community Plan, she predicts we will continue to see a push for more density near the core, with less focus on single family homes and more emphasis on maximizing land to accommodate the flood of people coming to the region.
“The city’s 2040 Official Community Plan favours that density in the core, which tapers building height as you move north,” Musseau adds. “Downtown Kelowna is already at 80 percent of its projected 20-year growth, with 4,000 units of the goal of 5,000 added units by 2040 already under construction or in the permitting process. All that growth, and we’re still in need of more units to meet the demand to come.”
With more density incoming and the need to maximize land, Kelowna can expect a continued influx of new condominium buildings and their presale offerings. With competition impending, Musseau knows what developers need to keep in mind as they take on new projects in the region.
“It’s no secret that people come to the Okanagan for lifestyle, and that should always be at the forefront of all developments,” she shares. “However, developers must note the subtle changes away from tourism-focused lifestyle amenities and towards life-focused amenities.”
Musseau says access to health and fitness centres, e-bike access and walkability to neighbourhood amenities including UBCO and Okanagan College are all major drivers for buyers in Kelowna right now. Maximizing outdoor living both in each home as well as in common amenity spaces is also something to put on high priority. Incorporating more technology and platforms that allow a safe ‘lock and leave’ lifestyle will give the parents of students as well as snowbirds peace of mind.
“I’m particularly excited to see the city is pushing to see more creativity from developers in the types of design, architecture and materials used especially in the downtown core,” Musseau adds. Overall, developers should look to make sure the building unit mix satisfies the varied, and changing, buyer demographics, and that the homes are small enough in size to keep end prices down but large enough to live comfortably and function efficiently.
“That’s the winning combination in the Okanagan right now,” she says.
For those looking to purchase a home in the area, the current landscape can be imposing. “MLA Canada is definitely recommending that anyone seeking to enter the market right now look at pre-sale purchases,” Musseau asserts. “For one, there will be more pre-sale product on the market, which will provide increased options and beneficial competition. Secondly, purchasing a pre-sale home right now—rather than a previously owned home—can shelter you from some of the concerns of today’s real estate and financial markets.”
As Musseau explains it, pre-sale purchases are subject to a different financial structure than resale homes. A homebuyer purchasing a new build does so within an extended deposit structure, meaning a 10% to 20% deposit is spread out over 18 to 24 months. This allows the buyer to save up or diversify investments. For two to five years while the projects are being built, a pre-sale purchaser does not carry any mortgage obligation or other property expenses beyond the deposit.
“This may give wary consumers an opportunity to look beyond today’s high interest rates,” Musseau says. “As a plus, nothing will show up on your credit until closing, which allows a buyer to own real estate without it immediately affecting their debt ratio.” In a rapidly growing and highly desirable market like the Okanagan, Musseau compares purchasing a home pre-construction to buying futures in the stock market.
“You’re buying at today’s prices with the belief that prices will rise in the future, and historically the long-term prices of residential properties have always gone up. You’re likely to see a large increase in value of the home before you ever make your first mortgage payment.” Although a market expert in her own right, Musseau asserts that a local agent who truly understands pre-construction purchases is key. “It's important to engage someone local,” she says, “as they will have a much better understanding of the OCP and how it is going to shape the city, as well as the ability to help navigate the various contracts and disclosure documents that come with purchasing pre-construction.”
More information about MLA Canada, Okanagan can be found here.
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