More than halfway through the prime cottage real estate season, experts say a stalemate between buyers and sellers is halting the market.
The post-pandemic market saw a leveling-out of cottage inventory in many of the major Ontario cottage areas, including Muskoka, Parry Sound, and Kawartha Lakes. After the cottage boom of 2020 to 2022—where inventory plummeted and prices soared—the market has pretty much returned to business as usual.
That said, experts say that this season got off to a slower start than normal.
“There’s a gap between what sellers want and what buyers are willing to pay,” says David Donais, a broker and the owner of Kawartha Waterfront Realty in Kawartha Lakes, Ont.
To some extent, this is to be expected. Buyers want the lowest price possible, while sellers want a return on the value of their cottage. But it’s the width of the divide that is unusual, according to Donais.
“Sellers have the memory of what prices were like two years ago,” he says, which is leading to more overpriced listings that sit on the market for months.
These high listing prices follow trends outlined in RE/MAX’s cottage real estate update from April. The report predicted Ontario cottage prices would increase in 72 per cent of recreational markets, a number that, anecdotally, appears to be accurate.
That said, “Buyers have the power right now and they know it.”
Are lower interest rates propelling more buyers into the market?
In mid-July, the Bank of Canada trimmed its key interest rate by 25 basis points for the second month in a row, leaving it sitting at 4.5 per cent. These cuts indicate the central bank’s confidence in inflation continuing to drop, signaling to Canadians that more reductions could be on the way.
A lower inclusion rate makes it more affordable to finance properties, but it’s not enough to make a real impact on the market yet.
“It’s going to take a while for it to filter through,” says Jim Marshall, a broker at Team Marshall Cottage Country Real Estate in Parry Sound, Ont. “A lot of buyers are anticipating that rates are going to keep coming down.”
The question is, how much will the interest rate drop?
Dave McMurray, a broker with the Muskoka Group, says that buyers shouldn’t hold their breath on the market returning to the “rock-bottom low” interest rates from the pandemic.
“There is a common thought that ‘prices will drop, so we’ll wait to buy,’” says McMurray. “The challenge is that very few people can predict the timing of when a buyers market will shift to a sellers market.”
Buyers are also contending with stricter financing criteria from banks, according to experts. From appraisal risks to restrictions on what properties they’re financing, Marshall says realtors are having to put in more work to make sure both buyers and sellers are getting the most out of their investment.
Changes to the capital gains tax did not drive more sales—but well-priced listings do
McMurray says that in spite of the initial panic that ensued from the federal government’s April announcement that it would be upping the capital gains tax inclusion rate—from 50 per cent to about 66.7 per cent of all capital gains above $250,000—he did not see an increase in sales as a result.
“There have definitely been ownership changes due to capital gains changes, but those were mostly internal transfers from parents to adult children,” he says. “Most don’t end up on the market.”
Other experts say cottage sales all but froze in the month-and-a-half between the announcement and the enactment of the change in late June.
“It stopped the market on a dime,” says Marshall. “Our busiest month is May, and this year it was crickets. It didn’t start picking back up again until after school ended in June.”
So, what is driving cottage sales right now? The simple answer is a well-priced listing.
“If you’re priced higher than the market, it’s going to sit there. On the other hand, if you price competitively, it sells,” says Donais. In Kawartha Lakes, cottages priced at the lower end of the spectrum—around $800,000 or less—are selling much more “robustly” than listings at $1.5 million and above, he adds.
“All it takes is one or two sellers to accept a fairly low price for a property, then that becomes the new benchmark,” he says. “That’s the comparable and that’s what buyers will zero in on.”
Experts agree that rates need to keep coming down for any major changes to happen in the market. In the leadup to the end of the cottage season, they’re expecting things to remain relatively stable.
For now, Marshall says he’s working with sellers to list their properties at comparable prices and guiding buyers through complicated financing processes. “I think the worst is behind us,” he says.
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