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the next move

A cottage stands on a lake in Muskoka, the heart of cottage country in Ontario. Brokers in the province's cottage country say the real estate boom there may have started to cool.Mark Blinch/The Globe and Mail

The chill in Toronto-area real estate has spread to Ontario’s cottage country.

“Incrementally, sanity is returning to our marketplace,” says Anita Latner, broker at Anita Latner Realty Inc. in Muskoka. “You can sense that the wind is changing.”

The season is not yet in full swing but Ms. Latner already senses that buyers are becoming more discerning. Offer dates come and go without any bids in some cases, she adds, and some sellers are reducing their asking prices.

“The greed is going out of our market. If you’re greedy, you’re going to be sitting there.”

The cooldown comes after a fierce run-up as buyers competed for scarce inventory.

“The market didn’t rise – it skyrocketed,” she says.

Ms. Latner believes the current hesitation on the part of buyers partly stems from the economic backdrop of higher interest rates and inflation. People are also wary of world events such as Russia’s invasion of Ukraine and the continuing impact of the pandemic.

“There’s just this air of uncertainty permeating the market.”

At the same time, many transactions were packed into the past two years as people grappled with the pandemic.

“I think most of the people who were going to buy have bought and most of the people who were going to sell have sold.”

Cottage owners have also been slow to list in the cool April weather, she adds.

Ms. Latner expects sales and prices to remain fairly steady during the summer of 2022.

She wonders, though, if the federal government’s move to ban purchases by foreign buyers for two years will put a dent in the Muskoka market because Americans will no longer be able to purchase summer havens on this side of the border.

American buyers represent only a small slice of the market, she says, but the policy may keep some away.

If prices do dip, she adds, properties on the Big Three Muskoka lakes – Joseph, Rosseau and Muskoka – are the most likely to hold their value, in her experience. She worries that some buyers were paying astronomical sums for cottages on small lakes in 2020 and 2021, she adds.

“That’s where you’ll lose your value when the market softens.”

Paul Crammond, broker with Chestnut Park Real Estate Ltd. in Port Carling, Ont., says sales in this past winter were much less hectic than one year earlier.

“That year people were panic-buying cottage properties – you couldn’t even see what the terrain was like. Even island properties were selling in the winter. People were going over on the ice.”

A more normal seasonal pattern has resumed in Muskoka and Lake of Bays as people began vacationing down south and travelling to ski resorts, he says.

Mr. Crammond says a new cohort of baby boomers may sell cottages in the next year or two as they plan for retirement. Record prices may tempt some to move up their plans to sell, he adds.

Mr. Crammond expects higher interest rates and inflation to dissuade some city dwellers from purchasing a cottage.

“Every time interest rates hike up, we will lose some buyers.”

Still, he expects the demand to remain stronger than supply for some time to come.

“It’s not as if you can just build another subdivision to increase the supply.”

Alexis Victor, real estate agent with Royal LePage Signature Realty, says prices have already started to slip in Ramara township and other areas northeast of Toronto.

The median price fell to $800,000 in April from a peak of $875,000 in February, according to data from Information Technology Systems Ontario.

“It was just on a dime – boom – everything shifted,” Ms. Victor says.

She adds that the current lull follows intense competition and rapid price appreciation earlier this year.

“Because it was so extreme, I think a lot of people got scared off.”

She adds that a cooler-than-normal April also kept buyers at home.

“No one in the city wants to jump in the car and go for a spring cruise when it’s snowing in April.”

Ms. Victor represented one set of buyers who found a cottage that suited their needs with an asking price of $699,000. The buyers offered $740,000 but the sellers rejected that bid and signed back the offer with a price of $850,000.

The buyers walked away and the sellers relisted with an asking price of $859,900 after nearly four weeks on market.

Flipping has also been rampant in the area, she adds, as builders have been buying up rundown cottages and fixing them up for resale.

She points to one two-bedroom cottage on a river, which sold for $750,000 in April, 2021, then changed hands again for $925,000 in August, 2021.

Now the property has been sitting on the market for three weeks after that set of buyers listed it last month with an asking price of $1,079,900.

Although the season has had a slow start, Ms. Victor expects buyers to return in good numbers as the weather warms up and they begin visiting friends at cottage properties.

Sellers who became used to hearing about prices constantly setting records will have to temper their expectations she adds.

“You may see a little bit more confusion because there was a bar set and that bar is where people are.”

Stephen Brown, senior Canada economist at Capital Economics, sees worrying trends in real estate markets across the country as sales fell by between 10 per cent and 30 per cent in Toronto, Vancouver, Calgary and Edmonton in April.

The drop looks even steeper in seasonally adjusted terms, he adds, because sales normally rise in April as the spring buying season gets under way. As a result, sales in Toronto and Vancouver were about 20 per cent below prepandemic levels, according to Mr. Brown.

With fixed and variable mortgage rates climbing, it seems likely that sales will fall further in the coming months and prices will decline in many cities, the economist adds.

Mr. Brown says the sharp sales declines in Canada’s major cities have only reinforced his view that the downturn in residential investment will prevent the Bank of Canada from raising rates by as much as markets are currently pricing in.

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