Central Okanagan Market Cycles 1989 -- 2007
The 3 Market Cycles 1989 -- 2007
Lot’s of opinions and predictions have been delivered to all of us courtesy of the media. We all know the media loves a car accident, burning building and the affairs of political figures. On any slow news day, the real estate market all over North America has consumed a few barrels of cheap ink.
You must be able to speak intelligently about this subject because realtors are now the most sought after person at the cocktail party. People want your opinion and they want to know what is happening. This is because everyone either owns real estate or would like to own real estate. They all have fear. To do this with any credit to yourself you need to be informed. That’s why we package stats for you on a regular basis. Today I would like to deal with the spreadsheet you have before you. This was e mailed to all of you earlier on this year. You need to carry this with you at all times.
The first thing to tell people is that the real estate market, like other markets, operates in cycles. The first cycle here is 1989 to 1994. This was a good market and featured double digit increases in values. Unit sales were also similar to our recent market. The average house price moved 70,000 dollars in 4 years from 100,000 to 174,000. Many people wish they had bought here.
The next cycle shows a correction phase where demand declined. Those years recording drops in value range from 0.84% to 2.5%. All in all, the end of this period still saw growth in prices. In 1994 and 1995, 25% of the realtors in Kelowna left the business.
People’s investments were basically safe. Many people wish they had bought here.
In mid 2001 the market started to change as investors entered the market again. By 2002, the market had recorded a significant upturn and the rest of the years following experienced double digit increases.
In 2008 we are experiencing a decrease in unit sales. We will likely finish the year at about 2100 single family sales or the same level as 2001. The average house price is not likely to come down much (so far it is 6.9% up from last year at this time). People will also wish they had bought here. Don’t forget, the best time to buy in a cycle is at the start.
Over the last 5 years the average house price has gone from $240,000 to $476,500 which is double. Over the last ten years it has gone from $176,000 to $476,500 and over the last 20 years it has gone from $100,000 to $500,000 or 5 times!
The reason there are cycles is that there is a price somewhere at the top where everyone will sell their house. Cashing out at the top gives you huge bragging rights at the cocktail party . They all make the decision to sell at the same time-listings go up and buyers refuse to pay the price. Calgary is a great example. When our market in 2006 went up 21%, their market went up 36%. All of a sudden, a lot of people are in million dollar homes. They contemplated moving their wealth, buying a vacation home or diversifying in some other way sometime in 2007. They all listed their homes, listing supply went sky high, the buyers refused to pay the price and the media entered the fray, predicting that the American meltdown was coming here. It didn’t and it won’t. We are actually at the start of the next cycle.
What we have now is a normal market-not a double digit, overheated market. In a normal market the following things happen:
Buyers have time to shop
Sellers wait longer for results
There is a selection to choose from
Buyers can negotiate price
There are fewer multiple offers
Realtors have to work hard
Both buyers and sellers need a realtor.
Now, the word normal deals with activity, not with price. The buyer is the end user. Gone for now, are the speculators and flippers. This means that the buyer will be willing to pay for those things which will give them satisfaction and enjoyment. They will equate value to the bricks and mortar they are buying, and not the short term investment potential. We all need to sharpen our listening skill and our service ethic to deal with this.
We need to reinforce the following:
Spread the “buy now” message supported by the spreadsheet
Remember that this is the best place to be for a lot of reasons.
People want what we have.
A significant event happened last year in Canada-the first baby boomer turned 60. Their birth year was 1947 and the baby boomers were born between 1947 and1966. One third of our population or 10 million people fall in to this category. Ten million people will turn 60 in the next 20 years. Many of us in the room today will be included in that number. But, between 2010 and 2020 the largest proportion will turn 60. This group is 6 million people. Think about where they will not go:
They will not leave Canada to live elsewhere
They will not live in the North
They will not live in the prairies
They will not live in our biggest cities.
They will live where their needs are met:
Near a major airport (we are 10th largest in Canada)
In a mild climate
In a beautiful environment
In an area with lifestyle choices
A reasonable freeway drive to a large center.
Large health care facility
Major shopping requirements are handled.
In the next decade the predictions are that Kelowna will grow by 100,000 more people. Six million people are retiring in Canada. We need to get 1.6% of those people. By the way-they won’t have to borrow any money or look for work when they get here
Are we ready?
The answer is no.
Picture the Westside-where are we going to put two and a half times the Westside.
Land is scarce, expensive and impacted by slope, environmentalists, and the ALR.
Developable land requires a two to three year window to move through channels.
Construction is expensive
We have geographic limitations-The South is almost full, Can’t go West, North has some potential, East is developing now. We are banging in to our boundaries in all four directions.
Municipal Councils in Kelowna and Westside have not or can not get ready for the coming change. If a high rise was approved as part of the downtown Kelowna revitalization next year, no one would live in it until 2011 or 2012.
I can not find any information that demonstrates that the price of housing in the Central Okanagan will become cheaper over time.
The new retired population is not your grandfather’s 65. These people are coming here to enjoy all the wonderful things that we have to offer. For the most part, they are not coming here to live in 800 square foot condos in a high rise building. These people are not prepared to give up two vehicles for one, all their furniture and mementos, their crafts, hobbies, offices, work shops , sports equipment. These people are in their 60’s and we are building high rise apartments for people in their 80’s. This style of building usually has the larger suites on the upper floors priced over 1 million dollars.
How many clients of this type have as one of their criteria the need for rooms to accommodate visiting family ? How many of these people have pets? How many of these people are not prepared to give up their collections yet?
The point is this : there is now, and there will be for some time, a good market for detached, semi detached and attached ground oriented dwellings. The supply is going to come from the resale by the clients you sold to in this sector over the last several years, and it is going to come from new supply.
Lake Country is well positioned to receive these buyers and we represent good developments there. Wilden is well positioned to receive this buyer over the next several years and we are represented there. The Westside, with the new bridge in place is going to be in the running for these buyers and we have agents living there and we represent some new developments there. Resale product in Gallagher’s is going to start turning over to a different demographic as one age group moves on and another moves in. We are well represented there. In addition, our company has a large number of agents either born in Kelowna, or well established with many years of experience and contacts. Therefore, we will likely bring to market interesting acreages, estates, homes, and waterfront properties for which we have an inside track.
I believe the future looks bright for all of us over the next 10 years and that we are well positioned to take advantage of the opportunities that are coming. Adjusting our mindset to working in a normal market takes time and energy but the rewards will be substantial. The next cycle is here now and we will grow and profit with this cycle as we have in the past.
Remember, you are always creating your own reality, so, the message I want to leave you with today is : be informed and be positive about the future of real estate investment in this area. Those are things you have always been able to do in the past and I am extremely proud to be associated with this group for that reason.
I promise to keep a close eye on statistics and trends that we can spin to our advantage and I will be doing one presentation per month at our Tuesday meetings on the subject so we are all armed with the best information in a timely fashion.
PLEASE SEE TRENDS STATS FOR CENTRAL OK 1989 -- 2005