$1-million house bubble bursts

A bellwether indicator for the Okanagan housing market fell to a 15month low in January as many buyers remained on the sidelines due to higher interest rates, according to the Association of Interior Realtors.

The price of a benchmark single-family home in the Central Okanagan settled at $977,000 last month, off about 5% from the $1-million mark around which it hovered for most of 2022.

January’s trading price was the lowest seen since October 2021, when the benchmark price fell to $962,000. By December 2021, the price had reached the $1-million mark and stayed there, with the exception of two months, October and September 2022.

Benchmark single-family home prices were also down in January on a year-over-year basis by about 6% to $657,000 in the South Okanagan, and off about 2% in the North Okanagan, where the benchmark price stood at $697,000.

Townhouses were the only category to buck the trend, posting a price increase of as much as 24% in the South Okanagan.

Waning interest from buyers that’s helping push down prices was also evident in the data, which showed a total of 552 residential sales across the region in January, down 49% on a year-over-year basis.

At the same time, the number of active listings on the market doubled on a year-over-year basis to 6,208 units in January 2023.

“This dampening in sales activity is not unexpected given current market conditions. Specifically, the cost of borrowing has risen over the course of the year and weighs heavily on homebuyers’ plans,” said association president Lyndi Cruickshank in a press release.

“Demand is still strong, but high interest rates will likely continue to make for a slow first quarter in real estate activity.”

In its ongoing effort to clamp down on inflation, the Bank of Canada in December raised its key interest rate by 0.5% to 4.25%, the highest level since 2008. It was the seventh such hike since March 2022, when the key interest rate stood at 0.25%.

But a Penticton mortgage broker noted not all interest rates are created equally and fixed-rate mortgages have actually been holding steady.

“Cost of borrowing has increased over the past year, but not over the past eight months for fixed-rate mortgages, which is what the majority of buyers want given the Bank of Canada’s constant increases,” explained Rene Carloni in an email.

“Bank of Canada has done major increases, but this only applies to variable rate-mortgages, which buyers have shied away from.”

Carloni said the bank is widely expected to pause increases for now while the market adjusts.

“Activity has picked up significantly since the new year. The activity will take some time to show up in the sales numbers, but I think you’ll see higher sales numbers in the coming months versus the last few,” added Carloni.