Mild weather heats up Ontario cottage country real estate

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Sales in Ontario’s cottage country real estate market ramped up early this year as an unusually light snow cover melted under balmy temperatures.

Paul Crammond, broker with Chestnut Park Real Estate, says a rush of unseasonably warm air in late March prompted people to open their cottages and tidy up the grounds in the Muskoka region. Some agents began putting out “For Sale” signs with the hope of getting a jump on the market.

As often happens in a Canadian spring, it was a false start.

“The ice went out in record-early time, and everyone put their boats in” says Mr. Crammond. “Then it started to snow.”

Now the market is heading into the traditional Victoria Day launch. Agents hope the early enthusiasm they saw from sellers and buyers signals a return to a balanced market in 2024.

So far this spring, inventory is on the rise after sales slowed as 2023 wound down.

The Lakelands Association of Realtors covers a broad swathe of cottage country that includes Muskoka, Haliburton, Parry Sound, parts of Georgian Bay Townships and Wasaga Beach.

Lakelands notes that sales of waterfront properties so far this year had jumped 24.2 per cent at the end of April compared with the same period last year. Sales of residential properties that are not on the water, by contrast, dropped 4.4 per cent to the end of April compared with the same period in 2023.

That divergence between waterfront and non-waterfront has continued for several months now, notes Lakelands president Bonnie Looby, who believes buyers of a new principal residence may be more cautious and on watch for interest rate cuts.

Matthew Regan, broker with Royal LePage Real Estate Services, has been talking with owners who are cleaning up their properties and preparing to list.

“Phones started ringing four or five weeks ago,” he says.

Mr. Regan sees demand from people who want to enjoy waterfront living while working from their cottage.

He believes buyers in 2024 have a different mindset than they had before the COVID-19 pandemic. Internet services have improved, he says, and many people are not working full-time in an office.

While relatively high interest rates have dampened demand in the residential market, vacation homes appeal to more established buyers, he says.

The largest cohort of buyers in cottage country is between 50 and 64 years of age, a Royal LePage survey found, and Mr. Regan believes a chunk of those buyers no longer have a mortgage on their city home so they’re more likely to have the means to buy a second home.

Some owners will likely be under pressure to sell because of today’s higher debt burden, he says, but he doesn’t expect that number to be overwhelming.

“There will be a cohort that just can’t handle it,” he says, “but people are not running to flood the market with inventory.”

According to Chestnut Park, active listings of waterfront properties on Muskoka lakes rose 59.8 per cent in the first quarter of 2024 compared with the same period in 2023 and soared 233 per cent compared with the first quarter of 2022 when urban dwellers were frantically buying cottages to escape Covid-19 restrictions.

Mr. Crammond points out that the inventory level, days on market and pace of sales are very similar to the pre-pandemic first quarter of 2019.

He adds that the tempo of the spring market often starts off as a continuation of the previous fall.

In the fall of 2023, the high-end segment on Lakes Muskoka, Rosseau and Joseph – known as “the Big Three” – showed the greatest strength.

Some family compounds and cottages in prime locations changed hands well above the $10-million mark, Mr. Crammond says.

“That actually raised the average sale price across the board.”

But buyers with deep pockets are less influenced by interest rates and ebbs and flows in the economy.

Some were also motivated to strike a deal during a lull in the broader market, Mr. Crammond figures, but he adds that prices in the upper echelons have remained firm.

“At the top end, we haven’t seen any softening on the Big Three over $7-million or $8-million.”

In Muskoka, the category below $2.5-million is considered entry-level. In all segments up to $5-million or so, cottage buyers are more likely to need financing and therefore become more susceptible to changes in interest rates.

“With every increase in interest rates, you take a certain number of buyers out of the market.”

On the smaller lakes, prices skyrocketed between 2020 and 2022. But buyers in those segments are more affected by economic forces and therefore prices are more elastic.

“On the smaller lakes, prices came down off their crazy pandemic highs,” he says.

He points to a relatively small, older cottage on a pretty lot on Lake Rosseau he sold last fall for $1.4-million. At the market’s high point, that property would likely have fetched $1.7-million, he says.

He figures a 15 to 20 per cent drop from the peak is a fair estimate across the region.

“Prices on the smaller lakes were unsustainable,” he says.

In the current conditions where inventory is building and transactions have dipped, further declines in the average price are likely, Mr. Crammond adds.

So far Mr. Crammond has not seen an influx of listings from sellers under duress because of high interest rates. Buyers bid up prices during the pandemic while interest rates were low, he says, but many in that cohort won’t face the prospect of mortgage renewals at higher rates until 2025 or 2026.

He has, however, seen some properties come to market because the rental market has softened.

During the pandemic, rents soared while urban dwellers looked for an escape. Some buyers who purchased at the peak were counting on rental income to carry the cottage, he says, but now many would-be renters are opting to travel instead. Some of those cottages are now landing back on the market.

Anita Latner, broker with Anita Latner Realty, says many listings are available on the lakes around Gravenhurst and Bracebridge, and transactions are happening at a healthy pace.

“It seems to me that a lot comes on the market every day,” she says. “There’s choice in every price point.”

Sellers need to be competitive, she says, and not reach for inflated prices.

Ms. Latner believes one reason for rising listings may stem from a small number of sellers who decided to pull their listings forward because of proposed changes to the capital gains inclusion rate, which are set to come into effect June 25th.

‘It’s chaos’: Cottage owners rush to sell ahead of capital gains tax changes, realtors say

In the 2024 budget, the federal government proposed rule changes that in some cases will increase the tax payable on capital gains, including those on second properties.

Ms. Latner says that closing a deal before the deadline will be difficult, but owners who want one last summer in the cottage before selling usually list on the long weekend in August.

“You might have moved the date up,” she says of the sellers. “People who might have waited didn’t.”

Mr. Regan does not expect the rule changes to have a significant impact this spring because the timeline to close is just too short, he says.

“It’s such a narrow, narrow window,” he says. “I don’t know how it’s possible.”

He also doesn’t think the changes will dissuade potential buyers. People who want to enjoy summers at the cottage won’t be thinking ahead to the day when they may owe a heavier tax if they sell.

“If you’re paying a capital gains tax, it means you’re doing quite well. You’ve made money on your asset. Lifestyle trumps that. Emotion trumps that. If you’re lucky enough to make a gain, I don’t think that will be the biggest thing.”