Last week’s Bank of Canada interest rate cut caught the attention of potential cottage buyers. Ottawa-based mortgage broker Andrew Thake will tell you that his inbox was flooded with client messages after the announcement. But is the 25-basis-point drop enough to throw in a cottage bid, or should you wait to see how the market shakes out?
Thake says there are two camps. Some experts are saying that inflation and interest rates are set to drop further over the next year, so if you’re thinking of taking out a variable rate mortgage, why not wait until rates are lower, making it easier to qualify for a larger mortgage.
On the other side, some experts are speculating that as rates go down, more buyers will enter the market, creating competition and driving up sales prices. This group is in favour of nabbing a recreational property now.
For Thake, now is a good time to buy, as long as you’re financially prepared to manage the costs of operating two properties. “If you wait for rates to go down, you’ll be saving a couple grand on interest, but you may be bidding against four other people and that cottage’s price is going to go up.”
Thake adds that the Bank of Canada interest rate cut only affects variable rate mortgages. Fixed rate mortgages, which are influenced by bond yields, currently sit at a more favourable percentage than variable rate mortgages.
Muskoka realtor Kelly Fallis agrees with Thake: if you have the resources, now’s a good time to buy. “The pace has returned to normal,” she says, adding that buyers have more time to make real estate purchases compared to the frenzied pandemic market. “I’m saying to all my buyers that they can swing for the hills. They can take their time and make demands. They have so much more leverage now than they have had over the last three years.”
The other reason now’s a good time to buy is that sellers are starting to adjust their expectations. Many sellers are still hoping for pandemic-level prices, but without the competition of multiple buyers, overpriced properties are sitting untouched, forcing sellers to reassess their listing prices. Fallis says she recently submitted an $850,000 bid on a property with an asking price of well over a million. The property had just gone through a $100,000 price drop and the sellers accepted her offer.
“Most realtors will wait for prices to drop,” Fallis says, “but I think it can be worth taking a swing first and seeing what happens.”
As mentioned, if rates drop further, it will likely increase competition for already limited inventory. Lack of available waterfront properties is a problem on many Ontario lakes, but particularly in Muskoka. There’s barely any room left to build cottages on Muskoka’s big lakes, Fallis says. Not to mention the importance of preserving natural land in the area.
“People are generally leaving Muskoka because they’re aging out, or there’s some sort of family dynamics that have changed,” she says, adding that it’s not because people are suddenly defaulting on their mortgages or have decided that the cottage lifestyle isn’t for them. In other words: Muskoka isn’t getting any less desirable, so if a property comes up that you’re interested in, it’s best to act fast.
Fallis advises clients to only purchase properties they really like. If the buyer takes ownership and is unhappy with the cottage, it could be a whole year before something better comes onto the market that’s reasonably priced.
So if you’ve been itching to own a piece of cottage paradise, buying now might be the best option. But waiting it out for further interest-rate declines could serve you in the long run as well. If you’re still hesitant, it’s best to speak with a financial advisor and a local realtor to determine what the right move is for you according to your financial situation.
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