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Luck favors the brave
I believe the next year or two will be an exciting buying opportunity in Kelowna.
I’ve said it before, and I’ll record it here to say it again – we are about to enter an amazing economic and cultural era for Kelowna.
We are close to the 20s of this century.
In the meantime, enthusiasm has waned somewhat since 2018 due to the negative global press and a sluggish real estate market.
We feel that the prevailing emotion has shifted from greed to fear, especially in the housing industry.
This article examines the market influencers that are creating today’s buying opportunities and the appropriate strategies to get the most out of them.
We’ve seen a small price correction over the past 12 months, averaging about eight percent, but that’s a broad, average number. Different market segments show large differences in performance.
The luxury market
Today an average house is being sold at a discount of 3.5% compared to the previous year, which offers buying opportunities across the board. Right now, however, the best odds are in the higher price ranges near $ 1 million where executive homes are discounted closer to 10%.
Even if the real estate market continues to slide, you can protect yourself in the short term by asking below which offers a significant margin of safety. In the buyer’s market, you might be pleasantly surprised at how low some nervous sellers are willing to go.
Favorable conditions for buyers
With the balance of power shifting from sellers to buyers, buyers now have the opportunity to negotiate fantastic terms with their business.
Sellers may be willing to consider a mortgage or look at more creative options like sales agreements or leasing options.
This is what I specialized in during the 2008-2009 global financial crisis that brought our market to its knees.
Further up
When the real estate market weakens, it is called an upward market. It’s simple: if the market drops 10% and you own a condo worth $ 500,000, you lose $ 50,000 in value.
Meanwhile, $ 1 million homeowners are feeling a pinch of $ 100,000. That $ 50,000 difference in value is something you can take advantage of as you move up in the real estate market.
While this was an oversimplified example, the numbers for aspiring buyers could be even better as today’s market conditions are not caused by churn and a sluggish job market.
On the contrary, the local economic fundamentals and employment growth are incredibly strong.
The effects of government intervention
This current market momentum is caused by government intervention – specifically the mortgage stress test, speculation tax and foreign buyer tax.
These guidelines had the greatest impact on the high-end market.
Historically, the typical buyer of a million dollar Kelowna property was either a downsizer from the lower mainland or a wealthy Albertan who came here to retire or buy a second home.
The new legislation has affected the high-end Vancouver market so much that we are seeing significantly fewer people using the arbitrage strategy of selling in Vancouver and moving to the Okanagan. Instead, they hold out and wait for prices to recover.
At the same time, the BC and Alberta provincial governments have created a social divide over building new pipeline infrastructure.
This political hot potato, combined with the very punishing tax on owning a second home in BC, has convinced some Albertans to move their money elsewhere.
To further tighten the market, the new Federal Mortgage Stress Test has significantly reduced Canadians’ purchasing power. Under the new rules, the minimum household income required to buy a home has increased so much that most buyers have been priced out of the luxury segment.
These buyers are now looking for homes in the $ 450- $ 600,000 range, where we are seeing far more stable prices and stronger buying demand compared to previous years.
What does all of this mean for the average real estate investor?
My advice is if you have a tendency to increase your property holdings, now is the time to do it.
If the banks fail to meet your goals today, try negotiating creative terms with the homeowner to get funding, or maybe consider a trade.
Take action
Many baby boomers have serious justice in their home on the hill trying to downsize and simplify their lives towards retirement. A trade is a fantastic way to structure a move-up deal. In today’s “down” market there are many new home builders who would like to trade in for a rentable condo or townhouse so they can get off their expensive home owner’s mortgage.
My company specialized in trading during the 2008 recession and they were a win-win deal if there was ever one.
Let me reiterate that we are experiencing a temporary market reverberation, not a full-blown real estate recession.
I believe the market offers exceptional buying opportunities for those willing to be brave. The best opportunities are in the luxury real estate sector. If you’re willing to be patient and a little creative, you might be able to get yourself a hell of a deal on incredible terms.
If you would like more information on how to use the strategies above – be it trade, sales contract, leasing option, or supplier financing – we’d be happy to help.
Please do not hesitate to email me directly at [email protected].
