December 14, 2023 How Kelowna Real Estate is Adjusting to 2023’s Market Dynamics

As we approach the end of 2023, the real estate market in Kelowna is witnessing a cooling trend, absorbing both seasonal fluctuations and the impact of interest rate hikes set in June and July. This shift is expected to persist through winter before rebounding in spring. Despite this, the market remains relatively stable, with prices showing resilience, declining just 3.7% year-over-year. From a historical perspective, the market is within 7.1% of its previous peak in April of 2022. Anticipated changes in interest rates, such as a potential rate decrease in mid-year Bank of Canada meetings, are predicted to usher in a busier spring season.

Resale Market Overview

The Kelowna resale market in 2023 was marked by below-average activity, with dynamics favouring buyers relative to a traditional environment. The sales-to-listing (S/L) ratio, a key indicator of market activity, stood at 14.4% in October. Traditionally, a market between 12-18% is considered “balanced,” while anything below or under that is considered a cool or hot market, respectively. For Kelowna, this statistic is historically much higher – sitting between 25-30% earlier in the year and higher in strong markets.

For additional context, approximately 75 homes transacted in Central Okanagan's resale market in October. This represents a 25.4% decrease in activity year-over-year. The Home Price Index (HPI) for condominiums in October 2023 was $517,300.

Presale Market Trends

In 2023, presale launch activity in Kelowna has been notably subdued across various submarkets. The concrete segment, in particular, saw a significant decline in launches, with only one concrete launch consisting of 342 units. On the other hand, wood frame launches remained relatively stable, totalling six launches and 760 units, reflecting its appeal as a more affordable product. Townhome launches, however, decreased threefold in 2023 compared to the previous year, with a total of four launches and 134 units.

These trends mirror launch activity seen in Metro Vancouver in 2023. Rising construction costs and dampened demand due to interest rates have created a very tight environment for developers to launch products into. Moving forward into 2024, MLA expects a substantial increase from the current year, as many projects that were placed on hold come to market as conditions improve.

Those strategically positioned with smaller, efficient floor plans are proving successful for launched projects. An excellent example is the Revo development by Millennial Developments. Their focus on compact but functional layouts has allowed for competitive pricing, resulting in robust absorptions.

Impact of Short-Term Rental Changes

The recent announcement regarding short-term rental regulations has had a noticeable impact on sales floors. Sokana, for instance, received an overwhelming response at the initial launch, selling out their entire first building within the first few weeks. The subsequent release, however, faced absorption challenges for their second building as it coincided with the announcement, with approximately 80 units still available out of 234 at the time of this report. One Varsity similarly has sold only 23 out of 342 units. Both developments are responding by offering significant incentives to both realtors and purchasers.

Future Prospects: Projects on the Horizon

While the current market presents challenges, several projects are ready to launch in 2024. Notable projects in the pipeline include:

• Phase 2 at Movala by Stober Group (CON) 
• 459 Osprey by Boudreau Communities (WF)
• Asento by Alinea in Penticton (CON)
• Somerset Reach by Boyd Wilson in Peachland (TH)
• Beach House by Interrobang in Penticton (TH)

Kelowna's real estate market in 2023 reflects a period of adjustment, with challenges and opportunities coexisting. The interplay of factors such as interest rates, regulatory changes, and strategic project positioning underscores the dynamic nature of the real estate landscape. As we look ahead to 2024, the industry is poised for potential growth, with investors and developers alike waiting to capitalize on a more favourable market environment.