6 real estate trends
2010′s cottage real estate market unfolded in the lingering shadow of the infamous summer of 2008— economic meltdowns, plunging property values, and clinging panic. Or did it? Here are six trends that defined the year and will shape 2011 (and maybe 2012). Each contains a surprise, large or small, and one revolutionized the market so seamlessly that we didn’t even notice it happening.
1. High-end cottage prices are dropping
A cautionary tale: In 2003, a couple, who shall remain nameless, purchased a cottage in Muskoka, on a large waterfront lot, for $400,000. It had all the buyer-friendly pluses in spades, including privacy and proximity to services. They poured nearly a million dollars into the property over the next few years, then put it up for sale for close to $1.5 million. The financial meltdown hit shortly afterward, in the summer of 2008. In September of 2010, the couple finally sold the cottage, for less than $900,000.
According to one Muskoka real estate broker, this story is far from unique. “The lesson is that the high, high-end cottages, from a million to four million dollars, have been hit hardest of all since ’08. It makes sense, considering how many of these cottages were owned and purchased by people in the financial sector, which has seen record unemployment,” he says, adding ruefully, “There just aren’t as many investment bankers around as there were before.”
Benjamin Tal, deputy chief economist with CIBC World Markets, sees the recreational market as an early warning system for trends that will eventually affect the urban residential market as well. “I would say that the market as a whole is going to be relatively soft over the next twelve months, with prices going down moderately, and beyond that a very flat market for a long period of time. The recreational market should be even softer than the market as a whole.”
Tal thinks that another trend already evident in cottage country, the end of overpricing, will be coming to the city before long as well. In urban areas such as Toronto and Vancouver, some people believe that the canniest course is to buy a home at the top of your budget, to press the outer edge of your comfort envelope in terms of price, because when property appreciates, the high end appreciates the most. With recreational properties in Ontario today, however, the ultra-expensive cottage purchase has become the riskiest buy of all. You only have to examine the roller-coaster ride of total cottage sales and average cottage prices over the past five years, in the province as a whole, to see the folly of the strategy. These parameters show the market, which had been rising steadily since the late 1990s, peaking in the spring of 2007, then plummeting sharply in 2008 with the collapse of the financial markets, and recovering marginally in 2009 and slightly more this past year, but without coming close to its highs. The apparent up-down-up movement is largely an illusion, though, because it’s skewed by the disproportionate numerical effect of those very high-end properties. In fact, this trend is not what’s happening with the kind of lower-end property mere mortals can afford: Let’s say a 1,200-sq.-ft., four-season cottage with 100 feet of water frontage.
While the high-priced properties followed the “trend” and nosedived at the 2008 meltdown, the more moderately priced cottages barely shrugged. According to John Jarvis, a broker-owner with Re/Max North Country Realty in Huntsville, our standard 1,200-sq.-ft., 100-foot-frontage cottage, on a small lake such as nearby Buck Lake, would go today for between $250,000 and $300,000 (less than half of what it would cost on Lake of Bays). It would have dropped maybe five per cent in value in 2008, and actually risen slightly past its 2007 peak over the past two years. If the mighty have fallen, the humble have definitely hung in there.
This same phenomenon, the resistance to market dislocations, is evident for moderate-value cottages in other pricey areas and across whole regions where the majority of cottages fall into this price range. In Haliburton, our 1,200-sq.-ft. waterfront cottage would have stayed relatively unchanged in value between $300,000 and $350,000. In the Point Clark–Kincardine area on Lake Huron, 1,200-square-footers went for $350,000 in 2007, and go for approximately the same today. In the Land O’ Lakes region, a famously affordable area north of the St. Lawrence between Belleville and Kingston, prices (which almost never go above $500,000) were undisturbed by the crisis of 2008—although supply, interestingly, increased dramatically, with spooked GM auto workers from the Oshawa area putting their cottages up for sale in droves. Chris Winney, a broker with Royal LePage ProAlliance Realty who lives on Kashwakamak Lake in the region, reports that her sales in 2009 were up 38 per cent from the year before, and that 2010 was even better. That 1,200-square-footer in Land O’ Lakes? A steady $250,000 to $275,000 throughout.
Even in areas where 2010 sales were down significantly, the effect of the economic meltdown was often secondary to local anomalies. Heading north to the Lake Nipissing–Sturgeon Falls region, what gutted the market wasn’t any global trend, but an unprecedented drop in water levels (attributed to a lack of snow the previous winter). “Lake Nipissing in particular had very low water in 2010,” says Mike Page, owner of Page & Associates Realty Brokerage in Sturgeon Falls. “It was disastrous for the industry up here. You saw it most with water-access property. Sixty per cent of boats didn’t even leave dry dock. I have a cottage on Nipissing myself, boat access, which I got to about twice last summer, and I had to walk in both times. The docks were high and dry.” Without the water situation, the worst in 20 years, Page estimates that 2010 sales and prices would have been on par with those of 2009, which almost matched the high-water mark (no pun intended) of 2008. This would have put our sample cottage in the “still pretty reasonable” range of $150,000 to $200,000.
Why is the 1,200-sq.-ft., sub-$300,000 cottage so stable and unshakable in value? Simply, it is the most numerically desirable cottage on the market. Its combination of price and features mean that more people are seriously interested in it than any other level of cottage property. In elementary economic theory, when there’s high demand for a product and limited supply, the price usually rises. But as the price rises, demand drops (and sellers wait a long time for a sale), so the price only increases by small increments. Theoretically, as well, with high demand, manufacturers generally increase supply; then, as soon as everyone interested in a product has purchased it, demand drops and so do prices. But this is lakeside real estate, which no one is manufacturing any more of. There are almost always more buyers than listings, so prices almost never drop. That price stability is precisely what’s happened in the past two years.
So where was the crash? In the cottage McMansions of south-central Ontario. For once, the wealthy sank, and the proles swam.
It’s almost too Robin Hood–esque to be true.