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Welcome to Mortgage Rundown, a quick take on Canada’s home financing landscape from mortgage strategist Robert McLister.


Sipping a drink as you bask in stunning sunsets from your cottage dock: What a life. It’s a life that most outside the top-third of income earners will never realize.

“The average family is not buying a cottage,” says Chuck Murney, president of the Lakelands Association of Realtors. “The average Canadian has been priced out.”

Median average waterfront properties in Ontario’s cottage country – the Lakelands region – now sell for an eye-popping $1.2-million, up 125 per cent from $535,000 since April, 2020.

Mortgage amounts on those properties have ballooned by more than half a million dollars, based on a 20-per-cent down payment.

Skyrocketing values and surging interest rates have, in turn, driven up payments on those mortgages – a staggering 159 per cent in the same time frame – from $1,958 to $5,081 a month.

And we’re talking just over the past 24 months, my friends.

Little moderation in sight

Showings have slowed “a little bit,” Mr. Murney says, but multiple offers over the asking price are still common in cottage hotspots, thanks to chronically scarce inventory.

Haliburton County, for example, was down to 34 properties for sale, according to the latest report from RE/MAX Professionals North, 19 per cent lower than a year ago. Meanwhile, properties there continued to sell 111 per cent over list price in April.

Can these kinds of values possibly be sustainable given market expectations for up to 300-plus basis points (more than three percentage points) of rate hikes and potential recession in a few years? I asked Mr. Murney for that answer.

“Based on average prices, I don’t think we’re going to see much reduction,” he reckons. “And, if we do have a reduction in cottage values, the anticipation is that it would be minimal.”

That may seem odd to those who think vacation home regions are less liquid and less resilient than urban markets, which higher concentrations of primary residences. In fact, cottage prices have generally held up better than primary residence prices in recent downturns, including 2008 and 2017.

But let’s be honest here. The market’s never seen a price run-up like this. Ever.

And these nosebleed prices will now be tested by up to 300-plus basis points of rate tightening and possibly even recession.

On the other hand, how far is the bottom for lakefront Ontario cottage properties:

· With record short supply

· When the Greater Toronto Area is projected to add more than 137,000 residents every year on average, for the next five years?

· When almost one in four urban residents (24 per cent) want to buy a recreational property within 24 months, according to a national Leger-RE/MAX survey?

Have fixed payments on a variable-rate mortgage? Here’s when you’ll really start to feel the pain of rising rates

How high can rates go? Mortgage lessons from the 1970s

People want more lifestyle, more space, they’re willing to work from home, and – despite hyper price growth – cottage country still remains more affordable than homes in some big cities.

That said, parabolic prices always reverse. And in this cycle, hordes of people have relied on home equity and investment equity to buy cottages. Weakening asset prices could therefore put a temporary top in cottage values.

If cottage price declines did get ugly (not saying they will), one thing is guaranteed. People will be lining up to buy that dip.

Financially stable cottage owners know this, and most will ask themselves, “Why bother selling?”

Cottage investing is still a thing

With pickings so slim on Airbnb and VRBO, cottage rents have soared. Appealing properties get snapped up immediately.

“Cottage country is where you come to reduce life’s stresses,” Mr. Murney says, noting that the only thing that could curb cottage rental demand might be prices themselves.

In less exclusive areas weekly cottage rents during season now range from $2,500 for “entry level,” to $10,000 a week for “mid-range” to more than $20,000 a week for “luxury” properties in Muskoka, says Troy Austen of Haliburton Cottage Rentals.

But cottage landlords have just three to four prime months a year to generate that revenue. So can investors still do it at today’s prices?

“You can absolutely cover expenses. We have clients renting their homes/cottages for upwards of $100,000 to $200,000 a year,” Mr. Austen maintains. But gargantuan mortgage payments, insurance, utilities, management, property taxes, agent fees and maintenance costs are just some of the expenses that eat into that revenue.

With values where they are and a challenging macro-outlook ahead, cottage investing is arguably riskier than ever, particularly if you don’t have sufficient fallback savings. For those thinking of jumping into the cottage business, do a pro-forma income statement on a spreadsheet and leave yourself at least a 10- to 15-per-cent contingency fund for vacancy and unexpected expenses.

And remember, the numbers will look a heck of a lot better if prices come down.

Mortgage deal of the year – in B.C.

More than seven in 10 Canadian mortgage shoppers choose a bank mortgage. In many cases, that’s a mistake. If you’re getting a mortgage in British Columbia or you already have a property there and need a five-year fixed, it could be a costly mistake.

Enter Community Savings Credit Union. At 3.39 per cent, it’s got the best five-year fixed in the country – a full point below typical big bank five-year fixed rates. And this is not a no-frills mortgage. It’s for both insured and uninsured purchases and refinances, and comes with 30-per-cent prepayment privileges and up to a 30-year amortization (if uninsured).

The rate savings versus big bank five-year offers is almost $4,800 per term, per $100,000 borrowed.

Moreover, if you simulate a 3.39-per-cent rate’s performance over five years, assuming market rate forecasts are roughly correct, it trounces all other terms.

“We’re able to offer this great rate as we have been very successful at keeping costs and delinquencies down and we pass these savings on to our members,” says Mike Schilling, CEO of Community Savings. But he adds the current offer is due for review on June 6, so get it while it’s hot.

Mortgage rates this week

Most rates stayed put, aside from the lowest one- to three-year fixed rates. They jumped 10 to 20 basis points in the past seven days, as the market anticipates higher rates to come in the next few years.

Lowest nationally available mortgage rates

TERMUNINSUREDPROVIDERINSUREDPROVIDER
1-year fixed3.49%Investors Group2.99%True North
2-year fixed3.84%RBC3.29%True North
3-year fixed4.09%Alterna Bank3.79%True North
4-year fixed3.99%Alterna Bank3.99%True North
5-year fixed4.14%Alterna Bank3.99%Marathon
10-year fixed4.94%HSBC4.44%Nesto
Variable2.39%HSBC1.99%HSBC
5-year hybrid3.37%HSBC3.51%Scotia eHOME
HELOC3.05%HSBCN/AN/A

As of May 25.

Rates in the accompanying table are as of Wednesday from providers that advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20-per-cent down payment, or those switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1-million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.


Robert McLister is an interest rate analyst, mortgage strategist and editor of MortgageLogic.news. You can follow him on Twitter at @RobMcLister.