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Rate hike punched another hole in sinking Thompson-Okanagan real estate market: Realtor

Terese Cairns is a real estate advisor with FaithWilson/Christie’s International Real Estate.
Terese Cairns is a real estate advisor with FaithWilson/Christie’s International Real Estate.
Image Credit: SUBMITTED

As expected, the Bank of Canada raised its key interest rate by another 0.5% today, Oct. 26, and it's expected to further slow local real estate markets.

“With every increase comes more doom and gloom,” Terese Cairns, a commercial broker with Faith Wilson/Christie’s International Real Estate, told “We have people who are just freaking out about it, even though it’s not the end of the world. Many people have witnessed much higher interest rates.”

Back in the 1980s, mortgage rates spiked just above 20%.

The Bank of Canada’s key rate is now 3.75% but that’s put five-year variable mortgage rates up to almost 6%, the highest they’ve been since 2008, Cairns said.

“They (buyers) are saying: ‘Oh my god, things are going up. We can’t qualify now,’” she said. “The hardest part is qualifying.”

READ MORE: Housing affordability is worst ever in Kelowna and the rest of Canada

Those who might still be able to squeeze into a mortgage are afraid that, when it’s renewed in five years, rates may be near those historic highs so they are holding off until rates start dropping again.

That’s not likely to happen for some time yet.

The Bank of Canada’s interest rate strategy is an effort to combat inflation and get it back down to its target of 2% per year. It has dropped to 6.9% from 8.1% earlier in the year but the bank projects it will only get to 3% by the end of next year and take until the end of 2024 to hit 2%.

In the meantime, interest rates are expected to go up by another 0.25% before the end of this year.

“Buyers are saying they need to wait until they see a downturn in order to act,” Cairns said. “That downturn is not going to happen, I think, until the end of 2023.”

At the same time, housing prices continue to remain higher than last year and will need to drop by about 30% from their peak in the spring, she said.

READ MORE: Okanagan housing prices rising faster than rest of B.C.

Cairns specializes in commercial real estate.

“On the commercial side, it’s a disaster because nobody wants to do anything,” she said. “Even developers who have cash to purchase properties – they want to leverage it as much as they can and they need construction financing if they want to build anything. They’re looking at 6% or 7% construction financing. With prices coming down, with downward pressure on pricing, it’s going to be difficult for them to see any (profit) margins.”

She had a number of potential sales of commercial properties on the go in the spring but the buyers have now pulled out.

They are waiting for good buying opportunities.

“Nobody wants to pay retail pricing right now because they think they’re going to be able to pick something up for cheap,” Cairns said. “They’re like sharks that can smell blood in the ocean 10 miles away. They’re thinking some of these guys are not going to be able to complete on some of these deals and we’re going to have some foreclosures and we’re going to get some really good bargains because people are going to be in trouble.”

Particularly tough these days is getting financing for hotels.

While that industry recovered well from COVID this past summer, there’s concern about increased COVID impacts this winter and another potential slowdown.

“Banks are not happy with them right now,” Cairns said. “They’re not lending. They used to lend on just the property value but they won’t do that now. Now, it’s a combination of income and property value.”

That being said, two hotels planned at or near Kelowna Airport are likely to go ahead because they’re catering to business and other travellers so have a good customer base, Cairns said.

Similarly, the proposed Westcorp hotel may be a safe bet given that it has the unique and needed benefit of being a luxury hotel on the waterfront in downtown Kelowna, she said.

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