Image: Derrick Nicholson
He doesn’t know exactly when it will happen, but Helmut Pastrick says there’s a very good chance the Central Okanagan housing market will end its considerable climb with a sizable crash.
Speaking to members of the Kelowna Chamber of Commerce Dec. 15, the chief economist for Central 1 Credit Union said there was a 70 per cent chance a recession will send the region’s housing market into freefall.
“This is still the number one way I think this cycle will end,” he said.
He said housing is one of the first sectors to suffer when economies take a hit, and when that happens sales can plummet 30, 40, or even 50 per cent.
The corresponding hit to house prices will depend on how much they rose in the preceding upswing, but Pastrick said it will likely mean a 20-30 per cent price drop in the Central Okanagan.
But a recession-fuelled freefall isn’t the only possible end to the current upswing in the region’s housing market. The second, less likely scenario is a “soft landing,” which Pastrick said would be the “ideal” outcome.
Image: Trevor Nichols
Helmut Pastrick speaking to members of the Kelowna Chamber of Commerce Dec 15.
The soft landing would see rising prices and costlier insurance contribute to an overall affordability problem in the housing market, which, combined with tighter regulations, would “set into motion a chain” that would dampen home prices.
“It wouldn’t surprise me that, as we see this housing market continuing to grind away, at the national level, as prices continue to go higher, and household debt (goes higher), policy makers will be very worried,” Pastrick explained.
“I can see further tightening, and there’s a lot of screws they could adjust.”
That would mean a price drop of around 10 per cent, or lower. Although, he put the probability of that scenario at about 30 per cent.
While Pastrick is putting his short-term bet on a housing-market crash, he said the long-term outlook for the Central Okanagan is much different.
With the region’s population projected to increase by 40 per cent over the next two-and-a-half decades, he said the number of households will increase by almost half.
But where will they all go?
“Land is really what it’s all about, isn’t it?” Pastrick asked.
He pointed out that there’s simply more demand for land than there is supply (a very acute problem in the Okanagan, where much of the land falls within the agricultural land reserve), and that will drive up prices considerably.
“Prices will more than double in the next 25 years, and that’s probably a low estimate. Quite frankly, it wouldn’t’ surprise me to see something much higher than that,” he said.
Pastrick said the consequence of ever-more-pricey homes will be fewer homeowners, and more renters.
He predicted the ratio of homeowners to renter in the Central Okanagan will change from about 70:30 today, to around 65:35 over the next 25 years.
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