Tag: cottage real estate

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Buy the Way: This couple used a line of credit to buy their dream cottage in P.E.I.

Photo by Marcia Ruby

The search
Marcia Ruby and Tom Howard always hoped they’d get back to the Maritimes. Tom’s from Saint John, N.B., and for more than 30 years, the Kitchener, Ont.-based couple would travel east with their two daughters to visit family. “But when the grandparents passed, we had no easy place to go,” says Marcia. “Our hearts were there, but our wallets weren’t.”

So when Tom’s sister sent them the listing for a cottage on P.E.I. in May of 2021, their first instinct was to shrug it off. “But when we looked at the place, we just saw ourselves there,” says Marcia.

What they got
It was a modest, two-bedroom, 621 sq. ft.-bungalow listed for $199,900, across the street from the ocean in Fernwood, just 20 minutes from Summerside on the Northumberland Strait—a spot known for the Seacow Head Lighthouse from the 1985 Anne of Green Gables movie.

They hadn’t been looking to buy anything, but they still had some bank credit available from when they’d downsized from their house in Kitchener to a condo nearby a dozen years ago. “A light went off. We could use the home equity line of credit we’d established when we bought our condo,” says Marcia. (A home equity line of credit, or HELOC, is a revolving line of credit that allows you to borrow against the equity you’ve already accrued in a property.) Their fixed interest rate was decent at 1.8 per cent, so it was beginning to look like the perfect time.

Within a few hours, they’d found a local realtor and put in an offer of just over $200,000. By the next morning, the place was theirs.

The silver lining
The cottage is just what they’d hoped it would be: their daughters—now 34 and 39—host friends in the spring, and the couple spends their summers there. Of course, there’s always a hiccup: the septic tank couldn’t be repaired. The family switched to a holding tank that filled up faster than they realized. To offset pressure on the tank, daughter Amelia immediately got to work building an outdoor shower, which they love even more than the indoor setup.

“It just made sense financially for us to buy this way,” says Marcia. “And we’re pretty happy to have the means for our family to stay rooted in the Maritimes.”

Marcia Ruby and Tom Howard standing on a beach in Prince Edward Island
Photo courtesy of Marcia Ruby

Line of credit know-how

Before you use a home equity line of credit to purchase a cottage, accredited financial counsellor Max Mitchell has tips.

Be careful about interest rates—especially if you’re on a variable mortgage

“In a previous interest-rate environment, a HELOC would be a lot more appealing or much lower risk than it is today, when interest rates are much higher,” says Mitchell, who’s based in Vancouver. Marcia and Tom have a low, fixed interest rate, and are currently paying down their principal as quickly as they can, before their mortgage and HELOC renews in a few years—likely at a higher rate.

Research the appreciation potential of property in the region 

“Anytime you’re using debt to purchase an investment, you should make a very educated guess to make sure your return is going to be higher than what you’re risking,” says Mitchell. “That doesn’t mean asking your realtor, who’s incentivized to make a sale.” In other words: do your own research.

Be prepared for future cash-flow crunches 

“If something comes around a year from now—such as having to pay for your kid’s wedding—you can’t sell the toilet from the cottage, you can’t sell the porch,” says Mitchell. “You have an incredibly illiquid piece of property.” Also, if renting out the cottage is part of your cost-covering plan, consider if you can still make the monthly payments if a flood, fire, or other event makes the place unrentable: “If everything goes sideways, how will you be impacted?”

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Ontario real estate market forecast: cottage-country realtors predict more inventory this spring

Photo collage by Taylor Kristan

Ontario’s real estate market has been in a dizzying state since the start of the pandemic, especially in cottage country. Prices boomed over the last two years with some recreational properties jumping into the millions as buyers scrambled after cottages, looking for an escape from the city. But then travel reopened, events restarted, and the cottage market cooled.

The Canadian Real Estate Association (CREA) reported that in February, 29 waterfront properties were sold in the province’s Lakeland region, which constitutes cottage-heavy areas such as Muskoka, Haliburton, Parry Sound, and Georgian Bay. That’s a 62.8 per cent drop from the same period last year, and 51 per cent below the five-year average.

In part, the lack of sales is due to low inventory. There aren’t many waterfront properties on the market right now. This has kept cottage prices stable, sheltering them from the price correction happening in urban centres. But the market could change this spring as local realtors anticipate a flood of new listings to hit the scene.

If you’re a buyer looking to get into the cottage market, here’s everything you need to know about what’s happening in Ontario’s cottage regions.

Muskoka

Three hours north of Toronto, Muskoka’s known for its windswept pines, rocky shores, and luxurious cottages. But as the CREA reported, Muskoka is currently short on inventory. According to real estate broker Susan Benson, waterfront property listings in the region are at their third lowest in the last 10 years. This has caused a spike in prices.

“The median list price for January and February is up 27 per cent compared to last year at the same time,” Benson says. The median list price for a waterfront property in Muskoka currently sits at $1.7 million.

This median price, however, might see a dip in the next few months. Benson says that at the end of 2022, properties were sitting on the market for about 15 days. Now it’s closer to 47. “Buyers aren’t biting,” she says. With properties sitting for longer, sellers may have to lower their prices to make themselves more appealing.

“A property that is priced properly can end up looking like a bargain in a market with competing properties that are overpriced,” Benson says.

Plus, the spring season typically brings additional inventory, giving buyers more choice and control. “You should, as a buyer, be able to negotiate conditions that ensure a proper vetting of the property and confirm your ability to pay for it,” Benson says. “This was the piece that was missing at this time last year.”

The Kawarthas

Southeast of Muskoka is the Kawarthas, a chain of lakes that feed into the Trent River. Similar to its northern neighbour, the region is suffering from lack of inventory, which is keeping prices high. “I listed one last Wednesday and had four showings on it. I got two offers, and it still sold $30,000 over the asking,” says Greg Ball, a real estate broker from the area.

The average price of a waterfront property in the Kawarthas currently ranges from $700,000 to $1 million, depending on the size and location of the property.

Ball predicts that the rise of interest rates and the financial burden of variable mortgages might spur an injection of new inventory into the market in May, balancing out prices and reducing the chances of bidding wars.

“From past experience, when a recession-type market hits, you dispose of what you can,” he says. “Something like the cottage will come before the house.”

If you’re planning on shopping around in the region, Ball advises using a local realtor. “We went through three years of people buying from their Toronto agent, and I’m not knocking them, but we are now getting calls from those people that purchased in 2021 and 2022 that can’t get their money back because they bought in a poor area,” he says. “I just can’t stress how crucial it is to use a local realtor that knows the area.”

Bay of Quinte

A little west of Kingston, not far from Frontenac, is the Bay of Quinte, a long and narrow body of water that connects to Lake Ontario. Unlike the two previous regions, the Bay of Quinte is already seeing its inventory bounce back.

“We’re probably up 20 per cent since December, which is typical,” says local real estate agent Doug Peterson. “When you look at the waterfront market, it’s pretty predictable, seasonal up and down.”

He expects more properties to come on the market in the coming months. “I think a lot of sellers have been hesitating over the last six months just because of uncertainty, and now things are starting to firm up a little bit more in the economy,” Peterson says. “It’s still a little topsy turvy, but people can’t wait forever.”

The Bay of Quinte hasn’t seen any recent fluctuations in waterfront prices, with the average hovering around $800,000.

If you’re looking to buy in the region, Peterson says you should act quickly. “The market is pretty tight, and well-priced listings are starting to move fast. There is a little bit of urgency that’s come back into the market,” he says. “We went for a few months where buyers were able to wait and see, and now we have those people saying, ‘Oh geez, I guess I should have done something.’”

Grand Bend

A little north of London on the sandy shores of Lake Huron is Grand Bend. The region is home to an iconic beach, making nearby cottages a hot commodity. But compared to 2022, inventory is down. “Last year, being a pandemic year, the situation was a little bit different, a little bit of a frenzied market. So, we’re looking now at more of a return to normal,” says local real estate broker Emily Carcamo.

As of the end of March, Grand Bend had 39 waterfront listings available with an average price of around $1 million. “That’s actually quite good,” Carcamo says. “If we’re looking at waterfront from Port Franks up to Bayfield, we’re looking at about 11 properties for sale where the average price is over $2 million.”

Grand Bend prices aren’t expected to see any drastic changes, but property on Lake Huron is a niche market meaning there’s always interest. In fact, the average sale price for waterfront properties in 2023 is 14 per cent higher than it was at this time last year. While days on market remains similar. In March 2022, properties sat for approximately 13 days. In March 2023, it increased to 15 days. This means properties are still turning over quickly.

The area has traditionally seen a lot of attention from baby boomers moving to Grand Bend post-retirement, but COVID has pushed an increasing number of young families out of urban centres in search of rural retreats. In many cases, they’re buying older, more affordable properties and renovating them.

“We are seeing more families leaving urban centres where prices were more expensive,” Carcamo says. “They’re re-evaluating their priorities in life and their goals, wanting to live in more of a rural setting by the beach where life is a little bit slower, a little bit more enjoyable—living that vacation lifestyle.”

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What information are cottage sellers required to disclose to buyers?

Photo by Mircea Costina/Shutterstock

A small beach house in Bayfield, Ont. overlooking Lake Huron has become the focal point of a $2.2 million lawsuit, according to the CBC.

Michael Bousfield and Leah Stumpf, a couple from Guelph, Ont., were in the process of purchasing their dream vacation home when the seller told them three days before closing the deal that the property was uninhabitable due to an eroding shoreline. Having already arranged their financing, the couple was forced to proceed with the purchase and has since launched a lawsuit against the seller, as well as the Ausable Bayfield Conservation Authority (ABCA) and the municipality of Central Huron, after the two governing bodies wouldn’t issue a permit to fix the shoreline without the couple paying for a coastal engineering report.

The case will be heard in a Toronto courthouse.

Negotiating real estate deals can be tricky. As it turns out, sellers aren’t legally required to tell you everything about a property. To avoid any legal troubles, here’s everything you should be aware of when you’re looking at a cottage and whether the sellers are required to declare it.

Patent defects

Roof leaks, foundation cracks, and window breaks. According to the Real Estate Council of Ontario (RECO), a patent defect is any visible issue with a property. They’re easy to spot—this could be a stain on the ceiling from water damage or a missing safety rail. Due to their visibility, the seller is not required to disclose these defects. To ensure you don’t miss any patent defects, RECO advises that you ask the seller and their realtor specific questions about the state of the property, and hire a home inspector to have a thorough look.

Latent defects

These issues are harder to see, so hard that even a home inspector might miss them. They’re the kinds of things that only the seller would know about, such as a basement that floods each spring, a quickly eroding shoreline, or any hidden damage or mould. Sellers are required to disclose this information to buyers. “If a seller is aware of such a defect and doesn’t disclose it, they can be exposed to a lawsuit by the buyer,” RECO says. The latent defect must be disclosed before the buyer enters a contract of purchase. If the buyer discovers a latent defect after purchasing the property that wasn’t disclosed by the seller, they have two years from the day the defect was discovered to launch a lawsuit.

Stigmas

Stigmas don’t affect the property’s appearance or structure. Instead, they’re past events that could cause the buyer to rethink their purchase. For instance: a murder on the property, an illegal grow-op, a notorious individual who lived there, or even rumours about the property being haunted. Since some buyers may be more comfortable with these stigmas than others, the seller is not required to disclose this information unless it affects the price of the property. The onus to uncover any stigmas falls on the buyer and their realtor. RECO recommends asking the seller and their realtor direct questions about the history of the property, researching it online, and speaking to neighbours.

Seller Property Information Statement (SPIS)

When looking at a property, the buyer can request a SPIS from the seller. This is a form filled out by the seller that outlines all of the potential defects and damages they’re aware of on the property. It’s a good way to get an overview of any problems you should be looking for. However, an SPIS is voluntary. A seller is not required to fill one out. RECO emphasizes that real estate transactions operate on a “buyer beware” system. In most cases, it’s up to the buyer and their realtor to uncover a property’s flaws. If a seller is unwilling to provide a SPIS, the buyer should have the home inspected by a professional and ask specific questions about the state of the property before entering a contract of purchase. Sellers are legally required to tell the truth if asked about their property.

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Listing of the week: This custom-built Lake Muskoka cottage is in an unbeatable location

Four red Muskoka chairs sit on a dock. Landscaped stone steps lead up to a large cottage with huge windows and trees all around.

1176 Parkers Point Road, exterior

A landscaped property has a patio with a fire pit and stone steps leading down to a large lake. Trees line the property.

Overhead view of Lake Muskoka

A fire pit surrounded by red Muskoka chairs sits on a patio overlooking a large lake.

Fire pit and view of Lake Muskoka

Overhead view of a large living area with a couch, chairs, and hardwood floors. Floor-to-ceiling windows provide a view of a large lake.

Overhead view of Great Room

A large living area with a couch, chairs, and a television mounted on a stone accent wall. Floor-to-ceiling windows provide a view of a large lake.

Great Room facing south

A large living area with high ceilings, a couch, and a coffee table.

Great Room

A modern kitchen with an island, white cabinets, and updated appliances.

Kitchen

A dining table set with plates, with three chairs on either side.

Dining area

A spacious bedroom with a large bed and an en-suite bathroom.

Primary bedroom

A bright bathroom with a toilet, a sink, and a soaker tub.

En-suite bathroom

A bright, simple bedroom with a bed, a ceiling fan, and a big window.

Guest bedroom

A medium-sized bedroom with a bed, a dresser, and a ceiling fan.

Guest bedroom

A bright, simple bedroom with a bed, a ceiling fan, and a big window.

Guest bedroom

A small bathroom with a toilet, a sink, and a shower-bathtub combo.

Guest bathroom

A bright, finished basement space that has walkout access to a backyard. Hardwood floors, a piano and chairs complete the space.

Walk-out basement

A bright basement living area with a couch, a chair, a coffee table, and a television.

Walk-out basement

A finished basement area with hardwood floors and gym equipment.

Walk-out basement

A bright bedroom with spacious bunk beds and walkout access to the outdoors.

Basement bedroom

1176 Parkers Point Road, Gravenhurst, Ont.

Lake: Lake Muskoka, Ont.

Bedrooms: 5

Bathrooms: 4

Lot size: 0.4 acres

Frontage: 104 feet

Asking price: $3,999,999

Previous asking price: $3,495,000

Taxes: $11,456.05

Date listed: March 1, 2023

Listing agent: Curry Clifford, RE/MAX Professionals North Brokerage

About the property

Enjoy modern lakeside living in the grand Muskoka tradition in this three-year-old, custom-built five bedroom, four bathroom home that easily accommodates 12 people over three full floors with space for everyone to spread out. All in an unbeatable location on Lake Muskoka less than two hours from the 401/400 interchange and just five minutes by car—or boat—to the Gravenhurst Wharf. Many are awe-struck walking into the south-facing great room featuring cathedral ceilings, a wall of windows overlooking the water, and a Muskoka granite gas fireplace. The main floor primary bedroom is an absolute sanctuary with a walk-out to a wrap-around deck, an ensuite with a soaker tub, and a large stand-up shower. Spacious bedrooms on each level with the most scenic of office spaces overlook the great room and the mesmerizing trees and water. Other features include a beautifully appointed chef’s kitchen, a bright and large inviting lower level walk-out living space, and an outdoor space fit for entertaining. Gather on the docks, by the fire pit, on the patio, or on the wrap-around deck, each with captivating wide open views of Lake Muskoka, and enjoy the sweeping granite staircase, terraced gardens, and oversized new Jacuzzi hot tub. An incredible package for a family (or families) to enjoy as their primary home or easily rent out when not in use at a very attractive income. This is a rare gem. Furnishings package available.

What are the main selling features?

  • Gorgeous, spacious home in the grand Muskoka tradition
  • Three levels with five bedrooms, four bathrooms, and a full entertainment space
  • Unbeatable location on Lake Muskoka less than two hours from the 401/400 interchange, on a municipal road
  • Five minutes by car—or boat—to the Gravenhurst Wharf
  • Fully rented last summer and fall at $15,000 per week

What makes this property unique?

  • Great outdoor entertaining space with a fire pit and a hot tub
  • Finished walk-out basement
  • Fully winterized for year-round living

Have there been any recent upgrades on the property?

A custom-built property that’s only three years old, everything in the home is up to date.

Take a tour


Would you like to list your cottage on our website? Email listingoftheweek@cottagelife.com.

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Property prices in popular ski areas are expected to drop in 2023, says Royal LePage

Photo by Shutterstock/Eric Kolly

Royal LePage released its Winter Recreational Property Report, and they’re predicting a decrease in the median price of Canada’s ski properties in 2023.

According to the real estate company, the median price of a single-family detached home in Canada’s recreational ski regions will decrease by 3 per cent over the next 12 months to $1,011,451. Rising interest rates are expected to reign in prices, although, they did little to affect things in 2022.

Royal LePage said the median price of a single-family detached home in Canada’s ski regions in 2022 increased by 15.1 per cent to $1,042,700.

“While the rapid rise in interest rates, which began in March of this year, has caused many would-be buyers in the residential market to move to the sidelines, some recreational property purchasers—most notably in higher-end markets—have demonstrated a greater tolerance to increasing monthly mortgage costs,” said Pauline Aunger, broker of record at Royal LePage Advantage Real Estate, in a statement.

Ski chalets were particularly popular among Americans who attempted to purchase recreational properties before the Canadian government implemented its two-year ban on foreign buyers, which started January 1, 2023 (despite vacation homes being exempt from the ban). According to a Royal LePage survey, 75 per cent of Americans who currently own a recreational property in Canada said that they made their purchase after the two-year foreign buyer ban was announced. Of those Americans who don’t own a recreational property in Canada, 67 per cent said the current strength of the U.S. dollar has made them more inclined to buy a home north of the border.

Despite attention from American buyers, and the increase in prices, all ski regions surveyed by Royal LePage saw a double-digit drop in sales volume.“For most Canadians, owning a recreational property is a nice-to-have lifestyle option,” Aunger said. “In the current economic environment, it is not surprising that sales have declined.”

But Aunger added that demand for recreational properties remains healthy; it’s just moderated itself compared to the sales volume seen during the pandemic boom.

B.C.’s Big White ski area, near Kelowna, saw the biggest jump in median price for a single-family detached home in 2022 with a 45.5 per cent increase to $1,600,000. Although, sales in the area dropped by 33 per cent.

“Transactions at the upper end of the market are largely responsible for the dramatic price increases in the single-family segment, as Big White continues to attract luxury recreational property buyers. However, demand has slowed over the last year as buyers adjust to the rising interest rate environment and sellers feel less urgency to list their properties,” said Andrew Braff, a sales representative at Royal LePage Kelowna, in a statement. “As activity moderates, we are seeing fewer multiple-offer scenarios compared to last year.”

In Whistler, the median price rose by 14.8 per cent to $3,648,200, with a 35 per cent drop in total sales.

In Canmore, Alta., the median price jumped 23.6 per cent to $1,588,900, but the area saw a 41 per cent drop in sales volume, trending back towards historic norms, said Brad Hawker, an associate broker at Royal LePage Solutions, in a statement.

In Ontario’s southern Georgian Bay area, which includes Collingwood, the median price increased by 11.3 per cent to $890,000, but saw a 27 per cent drop in total sales. Southern Georgian Bay is one of the few areas Royal LePage expects prices to go up in 2023, they’re predicting a five per cent increase in the median price.

Finally, in Quebec’s Mont Tremblant, the median price increased by 23.5 per cent to $500,000, with a 38.1 per cent decrease in sales. While the median price of a condo in the area increased by 44.4 per cent to $475,000, but the area saw a 47.8 per cent decrease in sales.

“The current slowdown should help shift the Tremblant housing market back to a more normal sales cycle,” said Paul Dalbec, a chartered real estate broker with Mont-Tremblant Real Estate, in a statement. “I expect that in the coming months, slope-side luxury condos worth between $700,000 and $1 million, and single-family residences valued from $400,000 to $600,000 will be most affected by the price correction, as those properties appreciated much more during the pandemic.”

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Market outlook: What fall brings for Ontario’s cottage country real estate market

While the cottage real estate market was hot over the summer, literally and figuratively, it’s expected to cool down in the coming fall months, according to Re/Max’s 2022 Fall Real Estate Market Outlook. But you can still expect a strong market, says Rick Laferriere, a Re/Max sales representative based in Barrie, Ont.  

What buyers and sellers can expect for the fall 2022 cottage real estate market

Based on his observations, Laferriere notes that there are many buyers, but not enough properties. He estimates there’s been a 30 per cent drop in the number of available properties compared to the summer. 

This means that for those looking to sell their cottages, Laferriere says you’re in a strong position to do so. Besides, spring and fall are prime months for selling; while owners typically devote other months to preparing their cottages for sale or rent. He recommends sellers work with a local real estate company familiar with the area’s values and prices. “If you overprice something in today’s market, it won’t sell.” Even if you’re not ready to sell this year, Laferriere recommends owners take photos of their cottages now against the fall foliage, rather than waiting until the winter months when their lawns are covered in ice or snow. 

In May, Re/Max forecasted average cabin and cottage prices in recreational markets would rise by 20 per cent for the remainder of the year. The report found around 40 per cent of Canadians living in recreational markets, such as the Kawarthas and Southern Georgian Bay, are drawn to its affordable pricing. But the recreational market in other parts of Ontario could look different depending on how high interest rates go. (The Bank of Canada has two more policy rate announcements left in 2022, one on October 26 and the last on December 7.) 

Ontario cottage regions with the biggest and lowest price jumps in 2021

The Muskoka cottage market is still hot, Peterborough cools off

There were two cottage-country areas of note in the fall Re/Max report: Muskoka remains an outlier and affordability has taken a hit in Peterborough. Muskoka region is still expected to experience a five per cent increase in average prices this fall. Over in Peterborough, interest rate hikes and mortgage stress tests may have finally put a damper on the market. The area is expected to see a seven per cent decrease in average sale price for residential and waterfront properties in the next few months.

Will cottage prices go down in Ontario?

If you’re in the market for a cottage, Laferriere says patience is key. With inventory low and prices high, it’ll take time to find a property that is in your price range and one that you actually like. According to Laferriere, a cottage on Lake Simcoe, Ont., costs an average of $1.9 million. “There hasn’t been much change in that price.” Even a waterfront condo in the Lake Simcoe area can cost an average of $790,000. 

On the other hand, prices for cottages in areas with weeds or the water nearby is silty have dropped by about 20 per cent from the summer. “Don’t settle for something just because that’s what’s available on the market,” he adds. 

Ultimately, the availability of properties can lead to major swings in the recreational market. Laferriere says availability can shift a buyer’s market to a seller’s market or a seller’s market to a buyer’s market.

Looking to keep tabs on the cottage country real estate market? Subscribe to our weekly enewsletter, The Key. 

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Cottage Q&A: Should I buy a cottage during a recession?

Photo by YAKOBCHUK VIACHESLAV/Shutterstock

Predictions of a coming recession have been thrown around a lot lately. Most experts say  Canada will be hit in 2023. To many Canadians, though, the Bank of Canada’s aggressive interest rate hikes, record-high inflation, and the current cost of living crisis make the recession feel like it’s already here.

For potential buyers looking to wade into the cottage real estate market, talk of a recession could make you second guess your choice. What will this do to the market? Is it actually a good time to buy? Before you panic, take a read through our guide. We’ll break down everything you need to know about buying a cottage during a recession.

What is a recession?

Even economists have trouble pinning down exactly when a country slips into a recession. The rough definition is that a country has entered a recession when it experiences two consecutive quarters of negative GDP growth. GDP increases when a country has a strong, productive labour force. That’s why a recession is often marked by high levels of unemployment.

Currently, the economy is coming off a high from the COVID-19 pandemic. While certain industries did suffer, demand in many, such as the cottage real estate market, skyrocketed. Thanks to low-interest rates and high savings, people were looking to spend. That, however, resulted in a high inflation rate and increased interest rates. These two factors lead to another recession marker: low spend.

How would a recession impact cottage prices?

Where they stand now, cottage prices remain high, says Haliburton realtor Shirley Rule. “In August, in Haliburton, the prices were actually up from a year ago, quite a bit. Now, the number of properties for sale is down by 40 per cent, but the sale prices were up,” she says. “And September seems to be holding its own compared to last September.”

According to Royal LePage’s 2022 Recreational Property Report, the average price of a waterfront property in Canada is expected to increase by 13 per cent this year to $640,710. Rule adds that despite the drop in sales volume, she’s still seeing demand, with multiple offers being placed on well-priced cottages with appealing shorelines that don’t need too many renovations.

This is a good sign that the market isn’t collapsing. But it still needs to be taken into consideration that cottages are a discretionary purchase. If a recession hit, the financial strain would likely cause sales volume to drop further and leave properties sitting on the market for longer. If this happened, it’s possible prices would start dropping to ensure the properties continued to sell.

But Rule points out that, unlike homes, there are only so many waterfront properties available at a given time. The limited supply could prevent a significant price drop. “There’s always going to be people wanting them at some point,” she says.

What are the pros of buying a cottage during a recession?

The pandemic brought a sellers market to cottage country. Not being able to vacation abroad, people started buying cottages as a way to escape urban centres. This increase in demand limited the supply of cottages available, driving up prices. According to Royal LePage, in 2021, the average price of a waterfront property jumped by 21.5 per cent.

But as borders have reopened and the Bank of Canada continues to hike interest rates, affecting mortgages, cottage demand has slowed. Rule says the market is starting to balance out again between buyers and sellers. If a recession hit and demand slowed further, power could shift to the buyer.

With less competition and cottages sitting on the market for longer, it gives you more leverage as a buyer. You can negotiate on price and include conditions with the sale. During the pandemic, demand was so high that buyers risked losing the sale by adding conditions, such as a home inspection. “It’s starting to get back into that now where a lot of our sales are conditional,” Rule says.

Cottage Q&A: What does selling “as is” mean?

She also advises people to be smart with their timing. Look to buy in the fall, Rule says. People who don’t want to take care of a cottage over the winter are looking to offload the property, increasing supply. Plus, summer’s over, so not as many people are thinking about buying a cottage, limiting demand. If you’re set on buying a cottage during a recession, fall is a good time to snag a deal.

What are the cons of buying a cottage during a recession?

A recession does, unfortunately, come with cons. Despite having your heart set on buying a cottage, you could experience some form of financial instability, such as losing your job. This kind of instability makes money lenders, such as banks, nervous. They don’t want to risk you defaulting on payments.

That’s why Rule stresses that you need to be certain you’ll qualify for your mortgage before putting in an offer. “The banks will ask for an appraisal. If the appraisal comes in lower than what [you’re] paying for it, then there are going to be issues,” she says. If this happens, the bank is unlikely to loan you more than the appraised value.

Mortgages are also difficult to qualify for right now. Rule says that the high qualifying standards of the current mortgage stress test are a major factor in slowing down sales volume.

Typically, during a recession, the Bank of Canada will lower interest rates to help stimulate the economy, as it did at the beginning of the pandemic. But currently, we’re coming off of a 39-year high inflation rate and the bank’s policy interest rate is sitting at 3.25 per cent, the highest it’s been since 2008. This means you’ll qualify for a lower mortgage amount than you would have a year ago, and your monthly payments will be higher.

There’s a chance that if we enter a recession, the inflation rate may drop and the bank can once again lower interest rates, allowing buyers to get better deals. But as it stands, experts are predicting interest rates to continue going up in the short term.

Regardless of whether we do enter a recession, Rule predicts that the wheels of the cottage real estate market will continue to turn. “There are still buyers out there who are eager to get something,” she says. “But they’re also being very picky about what to get. They want to make sure they’re getting what they want. You can’t blame them.”

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Cottage Life

Demand for Ottawa-area cottages slows, prices remain high

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Much like the rest of Ontario, the Ottawa Valley’s cottage real estate market experienced a surge in activity during the COVID-19 pandemic. But experts say the area is now starting to feel the comedown.

“In our market, we saw a 30 per cent increase in pricing during COVID,” says Erin Phillips, a realtor in the Ottawa area whose team specializes in waterfront properties. “Our demand was through the roof. But it’s actually starting to slow down a little bit. We’re getting a little more inventory and a little bit more of a balanced market.”

Demand in the area started to slow in July, says Phillips. This means that bidding wars, which contributed to driving prices over asking, have become rare, and cottages are staying on the market for longer. In March, cottages were snapped up within two days of going on the market. Now, the closing period for a cottage hovers around 30 days, says Phillips.

“During COVID, you had no time to sit and take it in. And cottage country is hard in our market because it’s pretty spread out around here…To get out and see them all you had to jump on it the minute it came up,” she says. “Now we’re getting a little bit more time on the market.”

Hiked interest rates have played a role in the slowed demand. The Bank of Canada raised its key interest rate to 2.5 per cent in July in an effort to combat runaway inflation. Higher mortgage rates and concerns over a coming recession have caused many to delay their dream of owning a cottage.

This ebb in demand has allowed the Ottawa cottage real estate market to start balancing out, shifting some power back to the buyers. Once again, buyers can include conditions, such as a home inspection, in their offers without worrying about it impacting the competitiveness of their bid, Phillips says.

Another factor slowing demand in Ottawa is cottage prices. Despite interest rates continuing to rise, cottage prices in the Ottawa area have remained high. Along the Rideau Canal system, one of Ottawa’s most desirable cottage markets, there are two price pockets, says Phillips. The first pocket averages around $1 million, and the second pocket is $2 million and up. The difference between the two price pockets is the amenities.

“Boathouses, outbuildings, number of bedrooms, waterfront exposure, etc.,” she says.

A number of the buyers showing interest in these high-end cottages are from Toronto, Phillips says. Specifically, individuals who’ve been priced out of markets closer to home, such as Muskoka.

Despite the inflated prices and interest from outside buyers, there are still affordable cottages in the Ottawa area. For those with a budget under $1 million, Phillips suggests looking at the Ottawa River and some of the smaller surrounding lakes in the Ottawa Valley.

But if you’re serious about buying a cottage near Ottawa, Phillips suggests doing it now. “I think come next spring, we’ll be back to a normal market with a bit of an increase [in demand] again, so I think the time to buy would be now to December.”

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Cottage Life

Cottage prices remain high despite rising interest rates: RE/MAX

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There’s been a lot of talk about recessions lately. With Canada’s inflation rate hitting 8.1 per cent in June, the largest yearly increase since January 1983, the Bank of Canada is driving up interest rates in an attempt to curb consumer spending and get supply and demand back into the same ballpark.

Real estate—cottages in particular—was expected to be one of the first industries hit by the bank’s tightened purse strings. Yet, a report from real estate company RE/MAX shows that cottage prices are remaining strong throughout Canada, with many regions still seeing price increases.

In 2021, the aggregate price of a cottage in Canada jumped 21.5 per cent to $567,000, according to Royal LePage. This was mostly due to the pandemic. Domestic, rural properties skyrocketed in popularity as people looked to escape urban centres and businesses transitioned to remote work. But even in 2022, when COVID-19 has become a part of our everyday lives, and many businesses are reintroducing in-office work, cottage prices remain high.

Here are the year-over-year recreational prices as of May 2022:

  • Kawartha Lakes, Ont.’s median residential property price rose by 30.4 per cent to $806,000.
  • Georgian Bay, Ont.’s benchmark single-family home price rose by 17 per cent to $804,800.
  • Powell River Sunshine Coast, B.C.’s average price of homes sold rose by 43.3 per cent to $677,950.
  • Prince Edward Island’s average price of homes sold rose by 20.9 per cent to $405,686.

Despite these increases, cottage prices aren’t skyrocketing the way they were during the pandemic. This is largely due to a decrease in overall sales volume. “You can really see the cut-off at about the end of May in my market,” says Bryan Coxworth, a real estate broker with Sotheby’s International Realty who operates out of Muskoka and Georgian Bay. “April and May I was still getting competing offers on pretty much everything I was selling. And then it kind of abruptly ended right at the end of May, and the market really slowed down through June and much of July.”

As of August, Coxworth has noticed people start to re-enter the cottage real estate market. This week, he sold a waterfront property within 95 per cent of its listed price. “That’s average. That’s where things typically sell if you look at 20 years of history,” he says. “COVID skewed those numbers. But I think where we are now is we’re back to a more normal market.”

A decrease in sales volume means that offers are no longer being driven above the asking price by bidding wars—an occurrence unique to COVID in cottage country, Coxworth says. But prices aren’t going down either. Stable internet and the ability to work from cottage country have ensured that there is still a demand for cottages according to RE/MAX.

But demand has waned compared to 2020 and 2021, especially when you look at the number of available cottages on the market. “During COVID, I was running two to three listings and they’d all sell within two weeks, so you never built up any inventory,” Coxworth says. Pre-pandemic, Coxworth managed 20 to 30 listings at one time. Now, he’s juggling around 14.

“In my mind, we’re not back to the number of listings that we’d seen through 2017, 2018, and 2019. We’re not up to that level of listings. Although, I can see it increasing, and I think it will continue to increase.”

With fewer competing offers and more supply, transactional power has started to shift back to the buyer. Previously, with bidding wars, buyers were often forced to pay over the asking price and didn’t have the luxury of including conditions with the sale. But that’s changing.

“Now, a buyer has an opportunity to come out, negotiate a little bit on the price, and protect themselves with the appropriate conditions on financing and a home inspection,” Coxworth says.

Without as many competing offers, buyers also have time to step away and think about the purchase. Whereas during COVID, if you didn’t act immediately, the cottage was gone, Coxworth says.

“If I were a buyer, this would be the time I’d be wanting to buy because I have more control over the situation now than I did a year ago. Far more control.”

Experts at RE/MAX say it’s unlikely cottage prices will ever return to pre-pandemic levels, but they may start to stabilize.

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Cottage mortgage payments could increase by 45 per cent in the next three years

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Rising interest rates could cause cottage owners who took out a variable-rate mortgage in 2020-2021 to experience a 45 per cent jump in payments by 2025-2026, said the Bank of Canada in its Financial System Review. The bank did specify that this number is hypothetical and is based on further increases to Canada’s mortgage rate.

Considering the bank increased interest rates by 50-basis-points in both April and June, however, the chances of further increases are likely. The bank intends to reassess interest rates in July.

By increasing interest rates, the bank is attempting to cool market demand and combat the elevated inflation level, which reached a 31-year high of 6.8 per cent in May. While intended to lower the cost of living, the increased interest rates are causing a spike in mortgage payments.

“It’s like red flashing lights in our face. [Mortgage rates] have been climbing so aggressively, fixed and variable,” says Andrew Thake, a mortgage broker based in Ottawa. “Fixed rates were in the one to two per cent range a few months back, and now they’re almost at five per cent with the major banks.”

A five-year, fixed-rate mortgage tends to be the most popular mortgage package, Thake says. This means that the property owner is locked in at a certain rate for five years. Therefore, a property owner who took a mortgage out before the interest rates started to increase is currently unaffected. But once those five years are up and the property owner has to renew their mortgage, they’re likely to see a major jump in payments.

Similar to the 45 per cent increase in high loan-to-income variable-rate mortgages, the Bank of Canada hypothesized that a high loan-to-income fixed-rate mortgage taken out in 2020-2021 would also increase by 2025-2026, jumping 26 per cent. Mortgages obtained in 2020-2021 are expected to see the largest increase because they were taken out when rates were at record lows.

At the moment, Thake says the fixed-rate mortgages are rising much faster than variable-rate mortgages, which fluctuate and are based off the Bank of Canada’s overnight lending rate. This means that a variable-rate mortgage is giving people more purchasing power.

“If a household made $150,000, they had no debt, their current home was paid off with 20 per cent down, and they’re using a variable interest rate, they would qualify for a $940,000 loan,” Thake says. “But if that very same client used a fixed rate, they would qualify for about $820,000. That’s a massive difference.”

For Canadians who did take out large mortgages during the pandemic, the Bank of Canada says that these highly indebted households are a vulnerability to the financial system, especially if household incomes don’t increase along with interest rates.

But Thake says it’s unlikely we’ll see a major spike in defaulted mortgages in the near future. This is because anyone who took out a mortgage had to pass the mortgage stress test. This test shows lenders that you’ll still be able to make your monthly payments even if interest rates rise.

To pass the stress test, you have to show your lender that you can meet the Bank of Canada’s minimum qualifying rate, which was increased from 4.79 per cent to 5.25 per cent in June 2021, and is based on the mode average of fixed rates posted over the last five years by Canada’s big banks, or you must meet the mortgage rate offered by your lender plus two per cent, whichever’s higher.

The issue, Thake says, is that since fixed-rate mortgages have climbed so aggressively, they now sit around five per cent, which when you add the lender’s two per cent makes them closer to seven per cent. This means that potential buyers won’t be able to qualify for as large a mortgage as they could in previous years.

Additionally, since mortgage rates are rising so quickly, potential buyers might be pre-approved for a mortgage one week, but then no longer qualify for that mortgage a week later after the rate’s been raised. To make sure you’re on top of increasing rates, Thake suggests working with a mortgage broker.

“When’s the last time your bank called you and updated you on rates?” he says. “A broker manages a client like a financial planner does. We have a pool of 500 clients, and they get day-to-day devotion. We only really earn our living if we service that client and everything goes through smoothly.”