Quote:
Originally Posted by Jonrox
I'll agree that it's weird in Kelowna.
- There's a disproportianate number of higher-end and million dollar homes given the population size.
- There are very few (if any) areas where you can build a home for less than $500,000. Thus, the only option in the $300-350,000 range are older homes.
- This results in the price of these homes being inflated as there's a gap in houses that actually deserve to be priced between $300-400,000.
- A lot of money is spent here, but not earned here, thus Kelowna being named one of the least affordable cities to live in.
I think for higher-end homes your dollar goes about as far in Calgary as it does in Kelowna. But you get much less for your money on less expensive homes here than in Calgary.
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I agree with all of this.
Quote:
Originally Posted by Jonrox
But I do think it has bottomed out in Kelowna. A lot of the people who have their homes for sale have the financial ability to wait out the market until prices improve, so don't feel pressured to move their homes quickly.
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Perhaps, but they'd better be pretty patient then. At the end of 2009, there were 308 $1M+ homes on the market and only 64 sales. That's 5 years worth of inventory on the market right now, not to mention how many owners would like to sell but are waiting for conditions to improve before listing. For comparison, there were 141 $1M+ sales in 2007 with an ending inventory of 257 units, less than 2 years inventory.
Quote:
Originally Posted by Jonrox
Plus, you're likely not going to get interest rates like we currently have a few years from now. Even if we haven't quite hit the bottom and prices fall a bit further, you're going to end up paying more in interest costs on your mortgage (assuming you will have a mortgage). You'll need prices to fall a lot further to make up the difference.
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First, you only get the lower rates for the first term of your mortgage. After that, you will be refinancing at a higher rate with a bigger balance than if you waited and prices end up falling.
The scenario belows assumes a 10% fall in real estate prices and a 2% rate increase, which to me seems like a fairly reasonable potential outcome.
Ex 1. Buying now at lower rate.
Loan = $500k, Amort = 25 years, I = 3.85%
Payments = $2,600
After 5 years refinance at I = 5.85%, Payments = $3,075
Ex 2. Buying later at lower price, higher rate
Loan = $450k, Amort = 25 years, I = 5.85%
Payments = $2,860
After 5 years refinance at I = 5.85%, Payments = $2,860
After 10 years, you will have paid $340,500 with a balance of $367,800 in Ex. 1 and $343,200 with a balance of $342,000 in Ex. 2.
The bottom line for me is that even with all the incentives to buy right now, ie. historically low rates, beat the HST, beat the new CMHC rules, the numbers in Kelowna are still horrible. What happens to them when these incentives are all removed in the next 6 months? Will they even maintain their current level?
I think a pullback in real estate prices is very likely unless for some reason the numbers really start turning around this Spring, which I see as unlikely as like you said Kelowna residents can't afford the prices and I don't see as many buyers coming from out of province as have in the past.