uncorking kelowna’s housing market: highlights from the first half of 2024

Housing market activity across much of Canada has been exceptionally slow through the first half of 2024. This year’s spring housing market (which is usually the busiest time for residential real estate activity) failed to register anything close to the same degree of momentum that is typical for the time of year. The dual headwinds of generationally-high interest rates and near-record home prices have kept many would-be buyers on the sidelines and restrained sales activity to levels not seen in several years. 

Among BC’s three biggest housing markets, sales activity in the Central Okanagan (i.e., the region encompassing Lake Country, Kelowna, West Kelowna, and Peachland) has been the most subdued. Sales through the first six months of the year came in at 31% below the prior 10-year average versus 19% in Greater Victoria and 22% in the Vancouver Region. 

Translating that into actual sales, there were 1,833 transactions in the Central Okanagan in the first half of 2024. Compared to the previous 10 years, only 2020 saw fewer at 1,764 (just 4% less than 2024), a year when sales activity quite literally went into lockdown at the onset of the Covid-19 pandemic. Outside of 2020, you’d have to go back to 2013 to find a slower first half of the year (though not by much) when there were 1,818 sales.

The flipside of the ledger is that more subdued sales activity has given the market some time to breathe after a few years of extremely tight supply conditions. In fact, resale home inventory in the Central Okanagan reached its highest point in nearly 11 years at the end of June with 3,150 active listings, which was 42% above the prior 10-year June average.

Other major markets have also seen inventory build quite considerably in recent months. Active listings at the end of June were 21% above the prior 10-year average in the Vancouver Region and 31% higher in Greater Victoria. That said, the Central Okanagan remains a notable outlier on both the sales and inventory fronts among these three markets: sales activity has fallen furthest below average and inventory levels have risen furthest above average. To understand why requires a look at one of the housing market features most unique to wine country.

Kelownafornia dreamin’

The Okanagan’s hot summers, natural beauty, and wide-range of activities catering to all lifestyles have long made it a sought-after vacation destination. Its location between two major population centers makes it a convenient getaway for those looking to escape both the hustle and bustle of the Lower Mainland and the extended winters east of the Rockies. As such, the local housing market has always had a higher prevalence of recreational activity (i.e. more people buying second homes and vacation rental properties) than Vancouver and Victoria.

One way to measure the scale of recreational activity in the Central Okanagan is to compare sales on a per-capita basis between BC’s three major markets. From 2014 to 2022, per-capita sales in the Central Okanagan exceeded Vancouver and Victoria in every single year for an average of 24.2 annual sales per 1,000 residents. In contrast, per-capita sales in the Vancouver Region and in Greater Victoria were lower and more in line with each other at an average of 18.2 and 19.5 annual sales per 1,000 residents, respectively. That’s roughly 25% more sales activity in the Central Okanagan on a relative basis, much of which we can attribute to recreational purchases.

Looking at per-capita sales more recently shows that all three markets have seen marked declines in 2023 and 2024. This is a product of both sluggish sales activity (as mentioned earlier, all markets have seen overall sales fall well below their 10-year averages), as well as rapid population growth (which we’ll get to later). But more relevant to our conversation on recreational activity is how much more per-capita sales have fallen in the Central Okanagan than they have in other major markets. There were 15.2 sales per 1,000 residents in 2023 (roughly 15% more than Vancouver and Victoria) and, based on activity through the first half of 2024, the Central Okanagan is on pace for 13.5 sales per 1,000 residents this year, roughly in line with Vancouver and Victoria.

In other words, the roughly 25% recreational sales surplus that we saw in the Central Okanagan between 2014 and 2022 has been completely eroded in 2024. Why is that? While higher interest rates and home prices have challenged housing market activity more broadly, they have especially challenged recreational sales. After all, how many people can even think about buying a second home or rental property when buying or servicing one has become so unaffordable? This helps explain why overall sales in the Central Okanagan have fallen so much further than they have in Vancouver and Victoria through the first half of 2024.

Short-term intervention

If you guessed that recreational activity (or lack thereof) was at least partly responsible for the 11-year high in active listings in the Central Okanagan too, you guessed right. New listings activity has been strong through 2024 and, logically, fewer buyers (whether recreational or not) means less demand to soak up those listings. Strong listings activity and weak sales is a recipe for rising inventory. But the recreational factor has been helping drive active listings higher in an even more direct way than that, courtesy of the not-so-invisible hand of government.

Significant restrictions were introduced by the BC government this spring to limit the number of homes being used as short-term rentals and, by the same token, to increase the number of homes available for long-term rental or purchase. Effective May 1st, short-term rentals were limited to principal residences and secondary suites (with some exceptions), effectively banning the ability to purchase or own an investment property with the intention of renting it out short-term on platforms like Air bnb or Vrbo. 

Naturally, as a desirable vacation destination, the Central Okanagan had an outsized share of homes being used as short-term rentals. Data from June of 2023 shows that, well-before the short-term rental restrictions were introduced as legislation, the percentage of homes being used as short-term rentals ranged from 2.1% in Kelowna to 4.9% in Peachland, well above rates across the Vancouver Region (0.6% to 1.1%), Greater Victoria (0.8% to 1.5%), and the provincial average (1.3%).

Like sales, a higher prevalence of recreational activity helps explain why active listings in the Central Okanagan have risen so much higher than they have in Vancouver and Victoria through the first half of 2024. (Note that West Kelowna was able to opt-out of the short-term rental ban for a year because its rental vacancy rate was above 3%. That said, the vast majority of the region’s short-term rentals were in the City of Kelowna where the ban does apply).

Less sales and inventory than you think

Housing affordability challenges have been a major theme across Canada in recent years and with that has come a lot of scrutiny on the impact of record population growth on our local real estate markets. This conversation is especially relevant in Kelowna, which was the fastest-growing census metropolitan area (CMA) in Canada between 2014 and 2023. Over this 10-year period, the Kelowna CMA (which is essentially the same geographical area as the Central Okanagan) welcomed nearly 54,000 new residents, for a 28% increase in its population.

Such expansive population growth has profound implications for housing demand and supply, but it also skews the statistics we use to measure things like the performance of our economy or the conditions of a market. For example, real gross domestic product (GDP) and real GDP per-capita paint two very different pictures about the health of Canada’s economy right now. 

The real estate market is no exception. Though it's been a very slow year for sales activity in the Central Okanagan, it’s actually been even slower when taking into account the region’s nation-leading population growth. The region tallied 1,833 sales through the first six months of 2024, which was 31% below the prior 10-year average of 2,640. However, on a per-capita basis, the Central Okanagan’s 7.1 sales per 1,000 residents was 42% below the prior 10-year average of 12.2. All told, the first half of 2024 has by far been the slowest year for the region in the past decade. Sales activity even trailed 2020 by 9% when adjusted for population growth.

Similarly, while inventory has certainly been building through the first half of 2024 (to 3,150 active listings), it was not quite 42% above the prior-10 year average at the end of June. When adjusted for population growth, there were 12.3 active listings per 1,000 residents, 19% above the prior 10-year June average of 10.3.

What about the second half of 2024?

Sales activity in the Central Okanagan has been exceptionally slow through the first half of 2024. Adjusted for population growth, it has been even more subdued. But that’s not for a lack of people wanting to buy homes. High interest rates have forced many would-be buyers to the sidelines and, more relevant to the Okanagan, quelled recreational sales activity.

With the Bank of Canada initiating its first 25 basis point interest rate cut in early June, and further signs of easing inflation and a softening labour market in the time since, the stage is being set for more meaningful interest rate declines through the remainder of 2024 and into 2025. This should help improve affordability and bring more buyers off the sidelines.

When buyers do feel more confident to engage with the housing market, there will be plenty of inventory to choose from (though not quite as much when we consider population growth). This should act as a shock absorber to increasing demand and help limit home prices from rising further out of reach for the average buyer.