What If Prices Fall?

What If You Buy a Kelowna Home and Prices Drop?

It is one of the biggest fears buyers have.

“What happens if I buy a home and Kelowna prices fall?”

It is a fair question.

Nobody wants to buy a home for $800,000 and find out it may only be worth $720,000 two years later.

But a drop in value does not affect every homeowner in the same way.

The result depends on several things:

• How long you own
• How much you put down
• How much mortgage principal you repay
• Whether you are forced to sell
• Whether you are buying another home
• What happens in the specific neighbourhood and property type
• The costs involved in buying and selling

A price decline can be painful for someone who needs to sell after two years.

It can be much less important for someone planning to own for 10 or 15 years.

And for someone selling and buying another property in the same market, falling prices may even improve their move-up opportunity.

The better question is not simply:

“What if prices fall?”

It is:

“What would falling prices mean for my specific plans?”

A Price Drop Is Not Automatically a Loss

Your home’s estimated value can move up and down while you own it.

That does not become a completed financial loss until you sell.

If you buy for $800,000 and the market value falls to $720,000, you have an estimated drop of $80,000.

But if you are not selling, you still own the same home.

You still have the same number of bedrooms.

You can still live there.

You continue making mortgage payments and reducing the balance you owe.

The lower estimated value matters, but it may not affect your daily life.

It becomes more serious when:

• You need to sell
• You have very little equity
• You want to refinance
• You need to borrow against the home
• Your mortgage is larger than the property’s selling value
• Your home no longer fits your life

This is why time matters so much.

A homeowner who can wait has more options than one who must sell immediately.

Four Different Homeowners Can Experience the Same Market Differently

Consider four people who each buy during the same Kelowna market.

Prices fall after they purchase.

The market change is the same, but their results can be completely different.

To make the examples easy to follow, we will use this starting point:

• Purchase price: $800,000
• Down payment: $160,000
• Starting mortgage: $640,000
• Illustrative mortgage rate: 5%
• Amortization: 25 years

These figures are examples only. They do not include every buying, ownership or selling expense.

Scenario One: Prices Fall and the Owner Sells After Two Years

Imagine buying the home for $800,000.

Two years later, the market has declined by 10%.

The home now sells for approximately $720,000.

After two years of payments under our example mortgage, the mortgage balance would be approximately $613,000.

That leaves roughly:

$720,000 sale price
– $613,000 mortgage
= $107,000 before selling costs

At first glance, the owner still has more than $100,000 in equity.

But remember that they originally put down $160,000.

They may also have paid:

• Property transfer tax
• Legal or notary fees
• Home inspection costs
• Moving expenses
• Repairs or renovations
• Mortgage-related costs

They will now have selling expenses, which may include:

• Real estate commission
• Legal or notary fees
• Mortgage discharge fees
• A possible mortgage penalty
• Moving and preparation costs

After those expenses, the owner could leave the sale with much less than their original down payment.

They may even need to bring money to the closing if the down payment was smaller or the price decline was larger.

Why Short Ownership Is Riskier

The problem is not only that prices dropped.

The problem is that the owner did not have enough time to:

• Reduce the mortgage significantly
• Wait for a stronger market
• Spread transaction costs over many years
• Recover from a poor purchase price
• Build more savings or equity

This is why buying for two years is very different from buying for 10 years.

A short-term buyer is heavily exposed to what the market does immediately after they purchase.

What If the Owner Does Not Have to Sell?

If the home still works and the payments remain affordable, the owner may choose to stay.

That does not guarantee prices will recover quickly.

But it removes the pressure to accept today’s lower value.

The biggest danger is often not buying before prices fall.

It is being forced to sell before you have time to adjust.

Scenario Two: Prices Fall but the Owner Stays for 10 Years

Now imagine the same buyer does not sell after two years.

They stay in the home for 10 years.

There are many ways the market could move during that time.

Prices might:

• Recover quickly
• Remain flat for several years
• Fall further before recovering
• Rise above the original purchase price
• Remain below the original price

Let’s use a very cautious example.

Assume that after 10 years the home is still only worth $720,000.

That means the property remains 10% below the original $800,000 purchase price.

Under our example mortgage, the balance after 10 years would be approximately $473,000.

The owner’s estimated equity would now be:

$720,000 home value
– $473,000 mortgage
= $247,000 in gross equity

Even though the home is still worth less than the original purchase price, the owner has much more equity than they had after two years.

Why?

Because 10 years of mortgage payments reduced the amount owed.

Does That Mean the Owner Made Money?

Not necessarily.

Equity and profit are not the same thing.

The owner originally invested a $160,000 down payment.

They also paid mortgage interest, property taxes, insurance, maintenance and other expenses during the 10 years.

If they sell, they still have selling costs.

The example does not prove the home was a strong investment.

It shows that holding longer can create more room to manage a price decline.

The Home Also Provided 10 Years of Housing

A home is not only an investment account.

The owner also received a place to live for 10 years.

A renter would have paid rent during the same period.

That does not mean ownership automatically wins.

It means the proper comparison should include the full cost and benefits of both renting and owning.

Simply comparing the original purchase price with the future selling price leaves out too much information.

Scenario Three: Prices Stay Flat While the Mortgage Declines

What happens when the market does not fall—but does not rise either?

Suppose the buyer pays $800,000.

Five years later, the home is still worth approximately $800,000.

People sometimes describe this as getting nowhere.

But the mortgage balance has changed.

Using our example, the mortgage would decline from $640,000 to approximately $567,000 after five years.

The owner’s estimated equity would be:

$800,000 home value
– $567,000 mortgage
= $233,000 in gross equity

The owner began with $160,000 in equity from the down payment.

Mortgage principal payments added approximately $73,000.

Is the Extra Equity a Profit?

Again, not automatically.

The owner paid interest and other housing expenses during those five years.

They may also face selling costs.

The property did not rise in value, but the owner gradually increased their ownership share by reducing the mortgage.

This is one reason flat prices do not always mean ownership failed.

Flat Prices Can Still Be Difficult for Short-Term Owners

If the owner sells after only one or two years, the small amount of mortgage paydown may not cover the cost of buying and selling.

A flat market becomes less concerning when:

• You can own for longer
• The home continues to fit
• Your payments remain affordable
• You are steadily reducing the mortgage
• You do not need to sell during a weak period

The longer you stay, the less your outcome depends on immediate price growth.

Scenario Four: The Buyer Sells and Purchases Another Home in the Same Market

This is the scenario many homeowners overlook.

Suppose you own an $800,000 home and want to move into a larger home worth $1.2 million.

Before the market falls, the price gap is:

$1.2 million
– $800,000
= $400,000

Now suppose prices across both parts of the market fall by 10%.

Your home may fall from $800,000 to $720,000.

The larger home may fall from $1.2 million to $1.08 million.

The new gap is:

$1.08 million
– $720,000
= $360,000

Your current home is worth $80,000 less.

That can feel like bad news.

But the home you want to buy is $120,000 cheaper.

The gap between the two homes has dropped from $400,000 to $360,000.

In this simple example, the softer market helps the move-up buyer.

Why Falling Prices Can Help Move-Up Buyers

When people sell and buy in the same market, they should not look at their sale price alone.

They need to look at the difference between the two properties.

A higher market may give you more for your current home.

But it may also make the next home much more expensive.

A softer market may reduce your selling price.

But it can also reduce the amount needed to move up.

This can be especially helpful when moving from:

• A condo to a townhouse
• A townhouse to a detached home
• A smaller detached home to a larger one
• An entry-level neighbourhood to a more expensive area

The larger property may lose more dollars even when both homes decline by the same percentage.

Falling Prices Do Not Always Help Every Buyer

This depends on the property types and price ranges.

The condo market may fall while detached prices remain stable.

West Kelowna may behave differently from Kelowna.

Luxury homes may move differently from entry-level properties.

Your home could have a property-specific issue that affects its value.

You also need enough equity and income to qualify for the next purchase.

Falling prices may improve the price gap without improving mortgage affordability if borrowing rates remain high.

The important point is that a lower selling price should never be reviewed by itself.

The next purchase matters too.

What About Someone Who Is Downsizing?

The math can work differently for a downsizer.

Suppose someone owns a $1.2 million home and wants to buy an $800,000 home.

Before prices fall, the difference is $400,000.

After a 10% drop:

• The larger home falls to $1.08 million
• The smaller home falls to $720,000
• The difference becomes $360,000

The downsizer may free up less money than they would have in the stronger market.

However, the purchase is also cheaper.

Their decision may depend on:

• How much mortgage remains
• Whether they are buying with cash
• Their retirement plans
• The cost of maintaining the larger home
• Whether they value lifestyle improvements more than maximizing the sale price

A softer market can help move-up buyers while reducing the amount a downsizer releases from the move.

The same market affects people differently.

What Happens If You Owe More Than the Home Is Worth?

This is sometimes called negative equity.

It can happen when:

• The buyer made a small down payment
• Prices fell sharply
• The owner has not held the property long
• Selling costs use up the remaining equity
• Debt was later added against the home

For example, suppose a buyer purchases for $800,000 with a small down payment.

Two years later, the property is worth $700,000.

The selling price may not be enough to repay the mortgage and cover selling costs.

The owner may need to:

• Bring money to the closing
• Delay selling
• Explore whether the mortgage can move to another property
• Rent the home, when practical and permitted
• Adjust the purchase of their next home
• Speak with their lender and financial professionals

Negative equity is one reason buyers should avoid using every dollar they have to purchase.

A financial buffer creates more choices when life or the market changes.

Are Kelowna Prices Guaranteed to Recover?

No.

Real estate discussions often assume every price drop will eventually be erased.

That is not guaranteed.

The overall market may recover while one property performs poorly.

A home’s long-term value can be affected by:

• Location
• Condition
• Layout
• Strata fees
• Special assessments
• Insurance problems
• Rental or pet restrictions
• New construction nearby
• Changing buyer preferences
• Road or neighbourhood changes
• The price originally paid

Time can reduce short-term risk.

But time does not make every property a good purchase.

Buying the right type of home at a reasonable price still matters.

What If Interest Rates Rise While Prices Fall?

Falling prices do not automatically make homes more affordable.

A lower purchase price can be offset by a higher mortgage rate.

For example, a buyer may save money on the purchase price but face a higher monthly payment because borrowing has become more expensive.

Existing owners may also face larger payments when their mortgage renews.

This is why affordability depends on more than price.

It includes:

• Mortgage rates
• Down payment
• Income
• Debt
• Property taxes
• Insurance
• Strata fees
• Repairs and maintenance
• The mortgage balance

A buyer should stress-test the payment rather than assume a price decline will make the purchase comfortable.

How Can Buyers Protect Themselves?

You cannot control what the Kelowna real estate market does after you buy.

You can control how prepared you are.

Buy for a Longer Timeframe

The shorter you expect to own, the more risk you take.

A home that fits for five to 10 years gives you more options than a home you may outgrow in two.

Keep Money After the Purchase

Do not use every available dollar for the down payment and closing costs.

Keep an emergency fund for repairs, income changes and higher future expenses.

Choose a Home With Broad Demand

Properties that appeal to more buyers may be easier to sell in a slower market.

Features may include:

• Practical layouts
• Useful parking
• Good natural light
• Reasonable monthly fees
• Access to employment and services
• Flexible space
• A location with steady demand

Avoid Overpaying Because of Emotion

A bidding war can create pressure to win.

But the more you overpay, the larger your exposure may be if the market softens.

The goal is not to win the property at any cost.

It is to buy the right property at a price that makes sense.

Understand Your Exit Options

Before buying, ask:

• Could I rent the property if I had to move?
• Would the home fit if my family changed?
• Is there enough space to stay longer?
• Could I afford the home if my expenses increased?
• Would I be comfortable owning through a slow market?

The best time to consider your exit plan is before you need it.

Should You Wait Because Prices Might Fall?

Maybe—but not simply because someone predicts a decline.

Waiting has its own risks.

Prices may fall.

They may stay flat.

They may rise.

Mortgage rates may change.

The right home may become available or disappear.

Your rent and personal needs may also change.

A better decision considers:

• How long you plan to stay
• Whether the home fits your life
• Whether the payment is comfortable
• How much financial room you have
• Whether you could handle a temporary decline
• What renting would cost during the same period

You do not need to be certain prices will rise.

You need to be comfortable with what happens if they do not.

A Price Decline Matters Most When Time Is Short

The same 10% price decline can create four different outcomes.

The two-year seller

They may lose a large part of their down payment after selling costs.

The 10-year owner

They have more time to reduce the mortgage and move through different market conditions.

The owner in a flat market

They may still build equity through mortgage principal payments, even without price growth.

The move-up buyer

They may sell for less but save even more on the larger property they purchase.

This is why a market headline cannot tell you whether buying was a good decision.

Your holding period, equity, next move and personal situation matter more.

Don’t Only Ask What the Market Will Do

Before buying, ask yourself:

• Could I comfortably own this home for five to 10 years?
• What would happen if its value fell by 10%?
• Would I still be able to make the payments?
• Would the property continue to fit my life?
• Would I have enough savings for repairs?
• Could I avoid selling during a bad market?
• Am I likely to buy another home in the same market?
• Am I comfortable with the risks?

If a temporary price drop would force you into a financial crisis, the purchase may be too aggressive.

If you can comfortably own, continue paying down the mortgage and wait, short-term price changes may matter far less.

The Bottom Line

Buying a Kelowna home before prices fall can hurt.

But the size of the impact depends on what happens next.

Selling after two years can turn a temporary price decline into a real loss.

Holding for 10 years gives you more time to reduce the mortgage and move through changing market conditions.

Flat prices can still allow equity to grow through mortgage paydown.

And selling for less may not be a problem when the home you are buying has also become cheaper.

The goal is not to predict the exact top or bottom of the market.

The goal is to make a purchase that can survive when your prediction is wrong.

The safest home is not always the one guaranteed to rise in value. It is often the one you can comfortably keep when prices temporarily fall.

Are You Worried About Buying Before Prices Drop?

We help Kelowna and Okanagan buyers look beyond the asking price.

That includes reviewing:

• Recent comparable sales
• Current competition
• Property-specific risks
• Likely ownership period
• Future resale demand
• The cost of buying and selling
• What happens under different price scenarios

There is no pressure to buy.

The goal is to understand the downside before making the decision.

Mark & Maddie Coons
Selling Okanagan Group | eXp Realty Kelowna
Office: 778-946-6454
Cell: 250-801-0361
[email protected]

Important Note

The financial examples in this article are simplified illustrations. They do not include every mortgage, tax, maintenance, legal or selling expense. Property values and mortgage results vary. Buyers and sellers should obtain advice based on their specific finances and property.