Things have changed in the last year, and with yet another interest rate increase today, there has been a large increase in interest rates over the past year which has really put a damper on the real estate market in the last 8 months. For the last look back on 2022, we are going to look at how healthy the real estate market is and this week putting a focus on the 2022 buyer survey provided by the Association of Interior Realtors. This is to give a sense of who is buying, how much money they are putting down, and what the intended use is of the properties being bought. The Association does provide the monthly reports, and we take this information with a grain of salt as it is a survey, so the output is only as good as the input, but also believe it is important to look who is active in the market to help advertise homes to people who have the highest interest. The full report can be found here.
To start with the overall health of the market, we are looking at the type of properties that were sold in 2022. The survey reported that one fifth of the buyers were moving to similar properties, 17% were first time home buyers, 16% were down-sizers and 15% move up buyers. With the interest rate increases, the one area we saw a drop in demand was for revenue properties as the rental income has not come up in direct proportion to the additional costs, but still a strong demand for revenue properties at 14%.
As we look at the type of buyers, couples with children led the charge, being responsible for one quarter of the sales. Followed closely by couples without children at 24%. Twenty percent of the buyers in 2022 were reported as empty nesters/retired.
Where are the buyers coming from?
In 2022, we saw the buyers within the Interior increase to 56% from 2021 where it hovered around 50% With the peak of the market now evident, buyers in the Okanagan are choosing to now move locally, with homes sitting a bit longer, giving more time to shop. 21% of the buyers were from the Lower Mainland area, which is a huge percentage of the buyer base and 6% from other regions in BC. Alberta accounted for 7% of the buyers, but most notably the Eastern Canada and Maritime region made up 5% of the buyers, which was a trend we saw start in 2021 with an uptick as the Okanagan is not so much of a secret any more.
Areas People are Buying
It is no surprise that the bulk of the properties bought in 2022 were in Kelowna and West Kelowna which amassed over 40% of the transactions for the Interior. The Vernon area was next closest at 16% of the buyers, followed by Shuswap and Penticton at 8%. Regardless of where buyers are purchasing, 44% of the buyers as we saw with the buyers origin are from outside the region. Each region will look to continue to grow over the coming years.
Where is the Money coming from?
Follow the money; this is the most important factor to me when assessing how healthy the market is. It is good to know the demographics of where people are coming from but that all doesn’t really matter if they are scraping to get by.
In 2022 the bulk of the purchases were with conventional mortgages which means that 20% of the purchase price or more was put as a down payment. With the average home prices the way they are these days this is not an easy feat to come up with the $200K for $1M purchase but 51% of the buyers were able to. We don’t know if families were called on to help with this, or if the bulk of it was equity in a home they sold, but nonetheless it is a good indication of a relatively healthy market. 12 % of the buyers had put down 20% or less in 2022 which is a bit more of a concern as with the market volatility if the market drops 5% from when they bought they could start to be underwater on their mortgage.
The strongest indicator of the health of the market was that 37% of the buyers bought using all cash! Likely, the equity in peoples home increasing so drastically over the last two years has caused this number to increase, but having over a third of all the sales in 2022 having been all cash and 88% of the purchases with 20% or more equity, the bulk of the 2022 buyers who bought at the peak likely can ride out dips and drops in the real estate market without being underwater on their mortgage. This does not take into account their current cash position and how well they can ride out the increase costs in spending and inflation. However, it does indicate that if a job is lost they can sell today at a potentially lower price than what they bought it for last year and despite losing a shirt or two, likely will not have to be foreclosed on or file for bankruptcy.
All in all, we don’t have a crystal ball, but with so much outside demand and strong cash demand, we don't foresee a huge fallout in the real estate market for the Okanagan. Will jobs be lost? Sure. Will people be foreclosed on? More than likely. Quest is will the jobs lost and foreclosures be the norm or the exception? I vote the latter.
Have a great week, reach out with any questions.
Mark and Maddie
Coming Next Week- January 2023 Statistics
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