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The property at 2787 Simcoe Rd. in Brechin, Ont. Realtor Alexis Victor, with Royal LePage Signature Realty, says the five-bedroom cottage on a point of land has 181 feet of shoreline on Lake Simcoe.Charlotte Van Amelsvoort/Charlotte Van Amelsvoort

The cooling in some parts of Ontario’s real estate market is restraining buyers and flummoxing sellers as both sides try to figure out what comes next.

Benjamin Reitzes, Bank of Montreal’s macro-economic strategist for Canada, cautions that rising interest rates will continue to dampen the enthusiasm around housing.

With the recent stratospheric run-up in home prices and persistently rising household debt, the warnings surrounding the housing market will no doubt multiply in the weeks and months ahead as the Bank of Canada pushes its benchmark interest rate higher, the economist says in a note to clients.

“We wouldn’t be at all surprised to see prices flatten out at some point next year.”

Mr. Reitzes says one reason for concern is that the market has seen a surge in investor activity driven by expectations of higher prices in the future.

“The potential for price declines is higher this cycle as many cities have seen prices go parabolic in recent months,” he says.

Countering those worries, Mr. Reitzes sees comforting factors such as strong immigration, record-high homeowner equity and mortgage stress tests.

Against that backdrop, some buyers appear more hesitant to jump into overheated bidding contests.

In Durham region, east of Toronto, Shawn Lackie is seeing showings subside and offers dwindle after the average sale price hit $1.228-million and the average detached house traded for $1.379-million in February.

“That’s just insane,” the agent with Coldwell Banker R.M.R. Real Estate says.

In recent weeks, Mr. Lackie says, homeowners who could have expected 10 or 12 offers at the start of the year now might receive two or three.

Helping sellers to understand the new reality is challenging, Mr. Lackie says. Prices are holding firm for now but the outlandish bids that sparked panic in some buyers at the start of the year are less common.

Mr. Lackie points to one house he recently listed with an asking price of $579,000. A couple of offers came in near the asking price, but one buyer stood out with a bid of $705,000.

Against Mr. Lackie’s advice, the seller wanted to hold out for $850,000. The property did not sell and is now off the market, he says.

“Managing expectations on both the sell and the buy side has never been harder,” he says. “The market always dictates what your house is worth – not you.”

The veteran agent says he’s reminded of the spring of 2017 when a burst of buyer mania preceded a bout of market malaise.

In April, 2017, the Ontario provincial government introduced a foreign buyer’s tax and other measures intended to cool the market. A few months later, listings swelled.

“These buyers who were thinking they would never get a house had an extra 40 or 50 to choose from. Then they realized they were holding the hammer.”

In the current market, Mr. Lackie is once again seeing homeowners who are contemplating selling sit on the fence as they wait for the market to peak.

“A lot of sellers are saying, ‘Hopefully I’ll be able to get in right at the very end.’”

Problems arise when a whole lot of sellers have the same mindset and list at the same time, he explains.

Mr. Lackie says some of that inventory may come from people who fled to the suburbs or a small town at the start of the pandemic. Those urban dwellers were often reacting to restrictions rather than planning how they want to live for the long term.

They now find themselves living in a small town where the only pub closes at 11 p.m.

“They realize they can’t go for a coffee on the Danforth at two o’clock in the morning. Well, what did you think? It’s a completely different lifestyle.”

One section of the market that hasn’t slowed down is that for waterfront property, Mr. Lackie says.

“Anything to do with water – and it could be a rundown, beat-up shack – is crazy.”

Young people are willing to forgo their downtown lifestyle to live close to a lake, he says, and many baby boomers are also looking for year-round waterfront homes.

Mr. Lackie says the Lake Scugog town of Port Perry, north-east of Toronto, is in the midst of a building boom. The Kawartha Lakes are also very popular with buyers.

Alexis Victor, a real estate agent with Royal LePage Signature Realty, sees no signs of a slowdown in Ramara township north and east of Toronto.

The stream of people wanting such properties has not diminished, she says, even as some workers return to offices in Toronto instead of working exclusively from home.

Ms. Victor expects that segment of the market to see lots of activity in coming weeks as spring listings arrive.

She predicts demand will keep pace because retirees, downsizers and first-time buyers priced out of the city are all looking in areas such as Orillia, Brechin, Beaverton, Cannington and Washago. And all of those buyers are in addition to the traditional clients searching for a cottage.

Ms. Victor recently helped two buyers find fixer-uppers in the $500,000 range in the Muskoka region.

One couple from the bedroom community of Whitby, east of Toronto, had been looking for three years. Now they have a large property that they plan to improve over time, she says.

Another buyer who lived in a condo near Old Mill in west-end Toronto purchased a rural property after Ms. Victor happened to spot a “coming soon” sign on her way to an equestrian feed and tack shop.

Ms. Victor says offer dates and eye-popping amounts above asking prices have become common as buyers have continued their search throughout the winter.

She recently listed an A-frame cottage on Talbot Lake with an asking price of $998,000. The property sold for $1.41-million.

“A-frames are so trendy right now. It’s a really special property – there’s no question about it,” she says of the cottage with 150 feet of private waterfront.

Inventory will rise when the snow has disappeared, she adds.

“Historically we would not see waterfront properties on the market at this time of year,” she says, noting that the buyers of the A-frame cottage have no idea what it will look like when the snow melts.

“I know it’s gorgeous because I’ve seen it in the summer, but they haven’t.”

Prices have skyrocketed in Lagoon City, where many homes are set on canals that give boaters access to Lake Simcoe.

A Royal LePage colleague drew multiple offers for a property he listed at 20 South Island Trail with an asking price of $999,888. The cottage sold for $1.601-million.

Ms. Victor is currently bringing to market a five-bedroom cottage on a point of land with 181 feet of shoreline on Lake Simcoe.

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2787 Simcoe Rd. in Brechin, Ont.Charlotte Van Amelsvoort/Charlotte Van Amelsvoort

The current owners sometimes offer the property at 2787 Simcoe Rd. in Brechin through Airbnb for $1,800 a night.

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The interior of 2787 Simcoe Rd., with its view of Lake Simcoe.Charlotte Van Amelsvoort/Charlotte Van Amelsvoort

Ms. Victor says many buyers are choosing to properties with short-term rental potential as a way to help with the mortgage.

Some city dwellers don’t plan to buy a vacation property but they are happy to rent cottages for a weekend or summer vacation.

“People are still going to stick to travelling close to home.”

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