Ontario’s cottage real estate market has remained “very quiet” following the Bank of Canada’s June rate cut, and unless there’s a deeper drop in interest rates, prices could be headed downward, says an expert.
A Re/Max report in April said Canada’s cottage prices were projected to rise almost seven per cent at the end of 2024 due to pent up demand from buyers waiting on the sidelines for the key interest rate to drop. But experts the Star spoke to now say the Bank of Canada needs to drop the interest rate significantly to stimulate any activity in the market.
“The best case scenario from a price perspective is that prices remain flat,” said Re/Max broker John Fincham, who focuses on real estate in Parry Sound and Muskoka regions.
For Ontario’s waterfront properties, sales are at their lowest point in more than a decade and there was around 7 months of inventory — the number of months it would take to sell available inventory at the current rate of sales activity — in the first quarter of 2024, Fincham said, compared to 3.5 months of inventory in the first quarter of 2021, using data from Information Technology Systems Ontario — a real estate data platform.
“The luxury market is holding the median and average price up, but now the luxury market is shaky. I think worst case, we could see a further 10 per cent drop in prices (in Ontario). I don’t see an increase in value, it’s very quiet,” adding that there’s too much supply and not enough demand.
According to Re/Max, Ontario’s cottage market was sluggish in 2023 and at the beginning of this year, with prices falling in the first quarter of 2024 in 54 per cent of markets. Muskoka was down five per cent year over year in the first quarter of this year compared to the same time last year, while prices in Southeast Georgian Bay were down a whopping 28.7 per cent.
The Bank of Canada’s June rate cut of 0.25 percentage-points did little to spur activity in the market, Fincham said, and with listing volume doubling year over year combined with falling sales, it will take some time for the cottage market to see activity return to pre-pandemic norms.
“We’d need to see a two-percentage point decrease to change activity in the market,” he said. That means if the Bank of Canada cuts its key interest rate this Wednesday, it likely won’t be enough to move the needle on poor sales.
Broker Sean McKinney at Re/Max Quinte Ltd. in Belleville, Ont., said although interest rates have been higher in the 40 years he’s been in real estate the drastic run-up in prices has made it significantly more difficult for people to buy real estate, let alone a cottage.
“It’s actually a great time for buyers to negotiate because we’re in a buyers’ market and there’s more to pick from closer to the wish list,” he said.
But there are many headwinds facing the cottage market, Fincham said.
One is the capital gains tax change, which has taken investor buyers out of the market. However, the tax change hasn’t had an impact on the new listings data, experts say.
Ontario realtors previously said they expected an “uptick” of new listings in the province as cottage owners who intended to sell in the coming years tried to off-load their properties ahead of the capital gains tax increase coming into effect June 25. The change hits owners with a higher tax bill when they sell if their capital gains are greater than $250,000.
But John O’Rourke, broker at Royal LePage Lakes of Muskoka, said there was “no material change” in new listings.
“We would have see a lot of cancelled listings (to know if the capital gains hike impacted the market) but we didn’t see that,” he said. “On an anecdotal basis some families moved up their plans to sell the cottage to get ahead of the (June 25) deadline but there was no impact in terms of a surge of listings or on pricing.”
At the end of the day, Ontario’s cottage market is shaping up to be similar to last year, which was “dreadful” in terms of sales, O’Rourke added.
“We have so much inventory right now, we would need to have a real spike in sales to have a good fall market,” he said. “During the pandemic, the pendulum swung so far one way, and now it’s definitely swung the other way.”
