The following article is from Canadian Real Estate Wealth Magazine.
While residential real estate in general rebounded sharply following the financial crisis of 2008 and the ensuing recession, vacation homes – traditionally linked to discretionary income – haven’t enjoyed the same recovery.
“We just haven’t seen the activity levels in the marketplace and prices have remained relatively flat while prices in urban regions have risen quite steeply,” says Phil Soper, president and CEO of Royal LePage Real Estate Services. “Generally, people seem to continue to be concerned about global economic issues impacting Canada.”
The concerns have made many people less willing to spend money on properties other than their primary residence. Restrictions on borrowing and media attention to the issue of rising consumer debt levels have also made people more conscious of keeping their financial house in order; the trade in vacation homes has suffered in consequence.
A survey by Leger Marketing this spring as part of Royal LePage’s regular recreational property report found that 59 per cent of survey respondents who previously considered buying recreational property have decided not to move forward.
“The reason was concerns about the global economic conditions,” Soper says.
A more cautious buyer has triggered caution among sellers, too, further cooling activity.
While financial pressures stemming from the recession and consequent job losses prompted some owners to sell properties to free up capital, many others have seen prices fall and held off listing their properties.
“Many of them are hanging on to those properties because they feel they are not able to get the value necessary,” Soper says. “As a result, we don’t have the amount of inventory that we should on the market, either. People aren’t selling because they don’t think it’s a good seller’s market and they don’t have to sell.”
However, sale activity this spring has shown an improvement over last year. Conversations with Royal LePage’s regional managers have been encouraging, and Soper believes markets have stabilized nationally and are in some cases recovering.
While markets aren’t swift, thanks to the double-headed dynamic of cash-conscious buyers and patient vendors, they are steady.
“Both the spring market of 2011 and the current market are moving along crisply,” Soper says. “It’s not a great market, but unit sales are up, prices are flat and properties are moving. It’s not necessarily a negative situation at all.”
Ontario, for example, has been “completely reasonable,” while Alberta has shown signs of strength for the first time in six years. The province experienced a dip in 2006 as markets paused, then a sharper shift south in 2008. Now, with confidence in the oil patch and consumer spending rising (the province posted strong growth in retail sales last year), vacation homes are back on the agenda.
Throw in a constrained supply, and prices are also showing strength for lakeside properties between the major centres of Calgary and Edmonton.
“For a British Columbian or an Ontarian, you’d never dream of paying the prices they do for that geography,” Soper says. “[But] it tends to be really chronically undersupplied.”
While the million-dollar properties at hotspots like Sylvan Lake have held their value, locations such as Pigeon Lake have seen waterfront prices become more affordable.
Royal LePage reports note that prices for drive-in waterfront properties at Pigeon Lake were running $400,000 to $600,000 in 2008, but have now pulled back to $350,000.
Similarly, in Ontario, values for properties on the Bruce Peninsula or in the Kingston/Gananoque region are virtually unchanged from where they stood four years ago. Drive-in waterfront properties on the Bruce Peninsula continue to trade at $250,000 to $450,000, while in the Gananoque area, the equivalent properties continue to max out at $300,000.
Meanwhile, along New Brunswick’s Northumberland Strait – the so-called Acadian Riviera, with its sandy beaches and summer festivals – waterfront properties command prices north of $160,000, also on par with four years ago.
As prices stabilize– and the fact properties have held their value despite fluctuations in market conditions and financing rules – mean times should be ripe for investors.
However, banks and investors are more conservative in how they’re approaching recreational properties. Banks are shying away from some assets in locations deemed too risky, as Harry Pettit, a sales associate with Prudential Kelowna Properties found out last winter.