6 real estate trends
The trends shaping this year's cottage market and the next
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.
2. Fewer Americans are buying
Moguls aside, the cottage owners in Canada—both present and prospective—who were hit hardest by the ’08 meltdown weren’t Canadian. They were the Americans who cross the border in a vacationing torrent every June to summer in the Great White North or, more important, to look for a summer place to buy. The torrent dwindled to a trickle in 2009 and 2010, dramatically in the Rideau Lakes region north of Kingston and south of Ottawa, which has traditionally welcomed up to half its warm-season residents from the lower 48. Disaster loomed for this cottage real estate market.
Luckily, cottage seekers from Toronto, a mere three hours away, came to the rescue. “We lost a lot of American buyers in 2008,” says Tanya Lemcke of Century 21 in Westport, an almost criminally picturesque town on Upper Rideau Lake, “but they’ve been completely replaced by Toronto clientele. It’s been a huge shift—for the past two years the bulk of our e-mail has come from Toronto. They’re very different from the Ottawa clients we’re used to servicing, by the way, in that at least half of them are more interested in privacy than being on the water. The first thing I hear from a lot of them is ‘I don’t want to be able to see my neighbour.’ ” The Rideau region is another one of those non-Muskoka anomalies: Cottage prices have either remained stable or risen over the past five years. Any gregarious Torontonian who’s interested in a four-season 1,200-sq.-ft. cottage on a prime lakefront property can expect to pay $300,000 for it.
Or, if they’re looking for a better deal, they can always head for Florida. In the now very mobile recreational property real estate market, a number of Canadians are doing just that. They’re drawn to the Sunshine State by vacation home and condo prices that have plummeted more than 60 per cent, walloped by the subprime mortgage tsunami. Karen Arbutine, a real estate broker in Orlando, is currently selling properties to foreign buyers, a number from Canada, who have traded the notion of a summer cottage up north for a “winter cottage” down south. Prices are such that even with the cost of airfare factored in, the southern option may be a bargain. What will it cost you to get that prime 1,200-sq.-ft., three-bedroom, two-bathroom place on the shores of a waterskiable lake in Orlando? About $140,000 US.
Same place on a nice golf course? $60,000 US.
3. Banks acting as partners, buyers paying in cash
Possibly to emphasize their difference from the American banking system when it comes to mortgage practices, over the past few years most Canadian banks have adopted the Beacon Score, a stringent measure of credit-worthiness designed by Equifax, a credit-rating agency. The score had been used primarily by private businesses for consumer credit checks. Given the economic climate today, using the score to assess mortgage eligibility was undoubtedly a good move, but lately in cottage country there’s evidence that the banks’ zealousness at protecting their investment—they’re acting more like a parent or a partner than a lending institution—has made buying a cottage more challenging. “The banks are really nitpicking about buying cottages now,” says Chris Winney, from her Land O’ Lakes location. “We had two deals go south last year because the access road to the cottages involved was only seasonal. Of course, the residents could get together and pay to plow the road but, no, the bank wanted to know that it was maintained year-round by the township, which no township can afford to do. The banks seem to want to ensure that purchases are more like homes, that they have hydro, septic, a year-round water source, or a heated line. And this is with people who are putting down $75,000 or $80,000— a huge down payment—on a $270,000 cottage.” Tanya Lemcke noticed a similar trend in the Rideau Lakes region in the last six months of 2010. The banks sent an appraiser to every one of the 10 properties she closed in August and September. A year earlier, she says, “not a single appraiser would have been sent.”
The result of this scrutiny is another trend that’s been noticed across the province: Buyers have started paying the full purchase amount, in cash. Don Evans, a sales representative with Royal LePage–Lakes of Muskoka Realty in Port Carling, says he doesn’t see much mortgage financing being done on recreational properties these days. “People are paying cash, with cash balances they have in reserve, or by cashing in investments, or possibly by refinancing their principal residences.”
“I sold a $300,000 cottage to a couple from the Beaches in Toronto, whose home had been appraised at nearly a million dollars,” says Chris Winney. “They simply wrote a cheque on their line of credit.”
The cash craze has also hit La Belle Province, but with a twist. Stephen Lynott, at Century 21 Macintyre in Chelsea, Que., in the Gatineau cottage region just north of Ottawa, says half the buyers he sells cottages to pay cash in the end—although not everyone will admit they’re planning to do it. Quebec law, taking Canadian financial prudence even a step further, requires any cash offer to be accompanied by proof of the cash’s existence, whether it’s in a bank account or an escrow account. Buyers leery of letting prying eyes see into their private resources resort to cute little ploys to avoid divulging. “Recently I sold a beautiful old cottage to a buyer who showed me mortgage papers first,” says Lynott, “and then, at closing, suddenly pulled out a pen and wrote a cheque for the whole amount.”
Oh, and that 1,200-sq.-ft. cottage in the Gatineau? $240,000.
4. Seniors are both coming and going
Many of Ontario’s cottage regions enjoyed their greatest period of cottage building in the early 1950s, and because the boomers are the largest single generation in modern history, the past 10 years have seen the greatest greying of the cottage population in memory. With rising values bringing soaring property taxes and capital gains implications, the decade has also seen a large number of original family cottages sold to non-related buyers. In the vast majority of these cases, the sellers have been senior citizens, giving up their cottages to return to the city full-time to spend their retirement.
Now, though, they’re meeting squadrons of their peers coming the other way. As many retirees are relocating to cottage country today as are abandoning it. This reverse migration is taking two forms. The first is a relatively younger wave, mostly in their late 50s and early 60s, buying cottages (and hobby farms) as year-round residences to retire to—or to continue working from. In the Rideau Lakes region, for example, although the past three years have brought more young families into the area, the bulk of cottage sales are still to retirees and semi-retirees. “If you’re a professional from the Ottawa area, working two days a week in the city,” says Tanya Lemcke, “the hour and ten minutes it takes you to make the commute is perfectly doable.”
The second wave is more surprising: These are older retirees who have always had cottages, which they’ve upgraded to four-season use, but who find that with increasing age they can no longer handle the physical demands of continuing to live alone in those cottages. “Maintenance becomes an issue for them,” says Bill Kulas, a sales representative with Re/Max Haliburton Highlands Realty in Minden. “But they don’t want to leave the area. They may be involved in the local scene, the local golf or curling club, or the hospital auxiliary in their nearby town.” The result, says Kulas, is a significant number of these seniors are putting their lakefront cottages up for sale and moving to a smaller house, “usually a bungalow rather than two-storey,” in local subdivisions specifically geared to this demographic. Subdivisions of this kind recently opened for business in both Minden and Haliburton, and similarly targeted condo developments are opening in larger centres on Georgian Bay, such as Collingwood, Meaford, and Owen Sound.
As well, health-care services for older people have improved in most of the cottage-area towns in southern and central Ontario, to the point where more than 25 per cent of the population of Haliburton County is of retirement age, one of the highest proportions of senior citizens in the province. And an ancillary group is now joining the former cottage owners in the town subdivisions: seniors who have never owned cottages themselves but rented them, or attended camps in a particular area as children. The cottage experience at this remove may be largely memory-laden and associative, but that doesn’t make it any less real. It’s difficult to deny that these people, addicted to living near water and forests, are still para-cottagers in their own right. “Once someone moves up here from the city,” says Kulas, “you almost never see them move back.”
5. Lakeside activism is on the rise
In the spring of 2010, a group of cottagers on a lake in Quebec’s Laurentian region got together to purchase the local general store at one end of the lake, which had been put up for sale. It was an important decision because the lake has no ser- vice road around it and is mainly water access—an outside buyer wouldn’t necessarily have preserved the property as is. Indeed, that outside buyer could very easily have been a developer intending to put up condominiums or at least sever the 0.8-hectare site into several smaller cottage lots, sparking a population surge that would have put greater pressure on the lake’s ecosystems.
This new private real-estate activist initiative in Quebec cottage country follows a recent program in one Ontario municipality. In 2010, Rideau Lakes Township passed a bylaw decreeing that any newly severed lots on lakes in the area had to have a minimum of 200 feet of waterfront and comprise at least an acre in total. Again, the aim is ecologically laudable: The new severance regulation will help the Rideau area avoid the overcrowding that has affected other cottage areas, and avoid possible shoreline erosion and septic overload.
The problem with the Quebec and Ontario examples is the paradox facing all cottagers on lakes everywhere in the country. No matter how pure the motive—and in both cases, the primary motives are definitely pure: preservation of a traditional business on the one hand, ecology on the other—the initiatives have the unintentional side effect of making it more difficult for other people, and particularly people of modest means, to ever own lakeside property. To build a new cottage in Rideau Township, they have to be able to afford a decidedly large, expensive lot. And to buy a cottage on that Quebec lake, they have to wait for one of the very entrenched locals to sell.
By the way, what does a 1,200-sq.-ft. year-round lakefront cottage go for in the Laurentians these days, where skiing is so popular that some hotel owners in the area consider summer the “low season”? $450,000 to $500,000.
6. Internet scouting is replacing the Sunday drive
In the early 1960s, when my parents were looking to fulfill a long-held dream and buy a recreational property—either a cottage or a farm—they spent every Sunday driving through the countryside north of Toronto, checking out possible locations. It took them three years of Sunday drives to find their spot, and when they did, I got the feeling that they were a little sorry the search was over.
Today they wouldn’t have time to think about it. As recently as five years ago, the typical cottage buyer in Ontario spent six months to a year finding a property. As of 2010, the time frame had dropped to between two weeks and two months. The magic engine behind the change—or the culprit, depending on your viewpoint—is the Internet. Online real estate information, abundant and instantly retrievable, has revolutionized the two real estate markets in which distance between buyers and properties make onsite visits inconvenient: the international market and the recreational property market. The web has created a new generation of cottage buyers and sellers who are unprecedentedly informed, focussed, and confident. “Five years ago, half our buyers were online,” says Huntsville realtor John Jarvis. “Today I’d say ninety-eight per cent of them are, and they have twenty times more information on a lake or a property. We regularly get e-mails from buyers who’ve done their own research, looked at eighty properties online, and narrowed their preferences down to two.” Buyers have become so web-savvy that brokerages are now providing such services as Google Earth views of cottages and virtual video tours (some posted on YouTube to avoid problems with downloading that would occur with their own websites).
Everything speeds up in the omnipresence of the Net, including the onset of every one of the trends I’ve already mentioned in this article. Which is not to say that everyone thinks this is a wonderful idea. “The sheer amount of information can be a good thing and a bad thing,” says Stephen Lynott, from his office in the Gatineau valley. “I always tell people, you still need to go see properties in person. Something may look really good online, but when you actually get there, it’s not quite so good after all. ‘Wait,’ you say, ‘I didn’t see the lack of privacy online.’ You have to see these places in the flesh. Pictures just don’t do them justice.”