By Tara Deschamps in Toronto
When the warm weather hits, Arthur Parks usually sees up to 10 referrals from Toronto real estate agents with clients feeling the allure of lakeside living as the summer heats up.
"This year, I haven't received any," said the real estate agent serving Peterborough and the Kawarthas, two of Ontario's most popular recreational markets.
"That's a dramatic difference. It tells me that people are not actually out there looking to buy cottages."
That dampened demand has come amid a succession of interest rate hikes — the latest was made Wednesday, when the key rate was hiked by a quarter of a percentage point to five per cent — that have shaved down buying power and made some rethink purchases, especially those of the recreational variety.
While many still dream of days spent at the dock, they're holding back on buying their slice of cottage country until they have better sense of whether the hikes will continue or until they see prices slide.
Royal LePage expects the aggregate price of a single-family home in Canada’s recreational regions to see a "modest" decrease of 4.5 per cent this year to $592,005.
Reduced demand and a lack of supply would keep the national aggregate price more than 32 per cent above 2020 levels and come after two years of double-digit price gains across the recreational real estate market, the real estate firm said in a spring report.
"The properties that during COVID were selling for a couple hundreds of thousands over asking price are now kind of sitting," said Christina Clayton, a real estate agent in the Muskoka region.
While buyers of luxury properties in Muskoka have been more immune to interest rate shifts, Clayton's business partner Heather Scott said people eyeing recreational homes priced between $800,000 and $1.6 million are "the most affected group of buyers by the rate changes."
These people tend to be looking for older, family cottages and are willing to sit on the sidelines until the market produces their ideal buying conditions, or at least clarity around where the market is headed.
"They seem to be waiting for sellers to drop the price." said Scott.
"Knowing rates have increased and have changed the buying power, they're holding out for sellers to come around."
But sellers are willing to wait too, especially if it means they can make more money. They know much of the lakefront property has been purchased and developed and with workplaces more open to remote or hybrid work, they expect demand for cottages won't wane much.
Such dynamics have produced a slow start to the selling season and created a "quite dramatic" shift in the market, said Parks.
"When I looked at waterfront properties that sold this year compared to last year in Peterborough County, we have about 80 per cent of the sales we did last year."
That amounts to about 135 sales this year compared with 165 in 2022.
In the category of homes valued at $2.5 million and above, Parks said the Peterborough market has seen about 50 per cent of the sales this year that it had in 2022.
In the $1.5 to $2 million range, sales were about 33 per cent of what they were last year, and in the under $1.5 million category, they've amounted to 87 per cent compared with 2022.
"There's an increase in the number of sales under $1.5 million, so this tells me people are steering downward from where they were a year ago and not as many people have been buying," Parks said.
Choices around cottage ownership often come down to affordability, said Nicole Ewing, a director of tax and estate planning at TD Bank, in an interview a few minutes after Wednesday's rate hike was announced.
"I would say that definitely the math has changed," she said.
"When rent has increased, of course, the cost of borrowing may go up and as mortgages get more expensive, higher monthly payments would typically result in reduced purchasing power, so these properties may be less affordable to many of the people who may have been hoping to get into that market."
Many have had to focus on the finances of their primary residence rather than seek another home for weekend or summer getaways and they're thinking more about the continued maintenance costs and even the higher gas costs to get to the cottage.
Whenever prices are lower or the fair market value of a cottage is seen to be lower, Ewing said people look to pass properties on to the next generation to reduce their capital gain.
Others may consider selling, Ewing said.
"But there's always that question of 'am I going to get the price that I'm hoping to get?'"
This report by The Canadian Press was first published July 12, 2023.
Banner image via The Canadian Press
