Canada’s cottage boom went bust. Will buyers take the plunge again?

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Recreational real estate has been on a wild ride the last few years. First there was the boom brought on by the COVID-19 pandemic, when interest rates dropped to .25 per cent and urbanites, suddenly free from the confines of office work, sought bucolic refuge from the close quarters of city life. Prices rose more than 40 per cent, and it seemed that any cottage with reliable internet for remote work was snapped up — sometimes for 70 per cent over asking.

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As the pandemic’s grip loosened, monetary policy tightened, along with the wallets of aspiring cottage owners. With the rapid rise in rates, from 0.25 per cent to 4.50 in two years, the forecast for discretionary spending on cottage real estate was a little less sunny. Prices and sales tumbled across most regions. According to ReMax’s 2023 Cottage Trends Report, the average sale price in one area dropped from about $1.24 million in the first quarter of 2022 to about $856,000 a year later. There was another slight downward shift nationally in 2023, with prices dipping by one per cent year over year to $646,600.

Now, as spring transitions into summer and cottage season gets underway, there are signs the post-boom market is stabilizing and would-be buyers may finally be ready to jump in. According to Royal LePage’s 2024 Cottage and Cabin Trends Report, the national median single-family recreational home price is $678,930 — 59 per cent higher than in 2019. That price is projected to rise another five per cent this year, with the highest appreciation expected in Ontario, at eight per cent.

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Meanwhile, cottage owners have been weighing whether to hold onto their beloved retreats or sell in advance of the federal government’s looming capital gains tax hike. The increase — from 50 per cent to 66 per cent on gains over $250,000 — has been positioned as a tax on the wealthy, but it will also be felt by middle-income Canadians with second homes, particularly those with longstanding family cottages purchased generations ago whose values have since skyrocketed.

Adding to the intrigue around the closely-watched cottage market is the Bank of Canada’s decision to cut interest rates for the first time in four years — lowering its key policy rate to 4.75 per cent and hinting at another potential cut in July. Will the rate cuts entice a new wave of buyers? Or will ongoing economic uncertainty keep them on the sidelines? How will the prospect of lower interest rates and higher capital gains taxes affect owners’ decisions to either sell or hold? To answer these questions, we talked to real estate professionals in five of the country’s most popular recreational playgrounds, seeking on-the-ground observations and insights into current cottage-country trends.

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Haliburton and the Kawarthas, Ont., three hours from Toronto

Haliburton is known for its network of serene, interconnected lakes, lush forests and year-round recreational offerings. So far this year, sales are up three per cent in the region, while prices have risen a remarkable five per cent. Local realtor Barb Williams of Baumgartner Realty Group has observed that clients are increasingly leveraging the looming capital gains tax changes as a negotiation tactic.

“Some buyers see it as a negotiating tool, to say, ‘Look, if I can close before June 25, would you take a break on the price of the house?’” Williams said. “So, we’ve had some deals trying to close before June 25, and some that were already in place but move the closing date up.”

However, the anticipated sell-off of recreational properties has not materialized, at least in Ontario, according to Williams.

“People thought there would be an influx of properties on the market because of the capital gains tax, but most people don’t want to lose their cottage,” Williams said. “And so, the banks have helped people stay in their properties by extending the mortgages to 30 or 40 years to help get through this period.”

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Nonetheless, there is evidence of an imbalance between supply and demand in many markets, and Williams warns that Ontario is steadily shifting towards a buyer’s market. If the decline in interest rates fails to spur new purchases, the cottage market could definitively belong to buyers by fall.

Muskoka, Ont., 2 to 2.5 hours from Toronto

The Muskoka region, centred around its three biggest lakes (Muskoka, Rosseau and Joseph), is Ontario’s main luxury cottage destination. Here, prices are down five per cent compared to a year ago, despite low levels of inventory. Local realtor Phil Harding of Muskoka365 notes that buyer sentiment remains cautious due to elevated interest rates.

Harding says he has seen more people looking since the June 5 interest rate cut. “Hopefully that translates into buyers shortly.” He explained that the “COVID-hype” that brought a frenzy of eager buyers seeking vacation properties has since faded. The buyers he sees now are more discerning, carefully considering their purchases. And Harding says the capital gains tax hasn’t moved the needle.

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“There’s certainly a little more inventory this season, but I haven’t noticed an uptick due to capital gains,” he says. “I believe that many people have been doing property valuations for estate planning, potentially handing them down a generation and crystallizing the tax at this time.”

According to Harding, properties of all price ranges are selling in Muskoka, from million-dollar cabins to high-end homes between five and 10 million. “Recently, a development lot sold for just over three million dollars,” Harding said. “The main point is that properties will sell this summer if they are priced correctly.”

South Shore, N.S., two hours from Halifax

South Shore is one of the most popular cottage areas on the east coast, renowned for its sandy beaches and picturesque trails. Corey Huskilson, a sales representative at Royal LePage Atlantic, has noted a favourable trend for local buyers. He observed that the deceleration in cabin prices since the “pandemic rush” has created advantageous conditions for those already living in the area.

“Right now, we are seeing a lot more Nova Scotians buying these lakefront properties rather than international buyers or people from out of province,” Huskilson said.

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Huskilson speculates that the dip in Ontario’s cottage prices has reduced the influx of people into Nova Scotia’s cabin market. The stabilization of prices has provided Nova Scotians with an opportunity to purchase properties at fair values, without the risk of overinflated prices.

Further, he explains that there was strong market activity in 2021 and 2022, which significantly reduced the inventory of recreational homes in Atlantic Canada. The surplus of homes decreased from being more than a year’s worth of supply to less than six months’. The market has now returned to its usual seasonal trends. However, he explains that unless there is a significant drop in interest rates to stimulate competition among buyers, it is predicted that price growth in 2024 will be modest.

In the meantime, Royal LePage predicts that the median price of a single-family recreational home in Atlantic Canada will increase 4.5 per cent in 2024, to $288,002.

Sunshine Coast, Pemberton, and Whistler, B.C., all within 2 to 2.5 hours from Vancouver

Frank Ingham, an associate broker at Royal LePage Sussex in North Vancouver, covers the cottage market in the idyllic locales of the Sunshine Coast, and Pemberton, near Whistler. These areas are renowned for their breathtaking natural beauty and abundant outdoor activities. Despite a glut of new listings on the market (up 82.4 per cent year over year by mid-spring), buyers are currently exercising caution.

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“People are not jumping at buying like they were a year or two ago,” Ingham said. “They have their hands in their pockets and they’re saying, ‘We’ll be patient.’ ”

Although he says most clients are pleased with the interest rate drop, with some now considering moving off the sidelines, prices remain unaffordable for most people. Even international buyers aren’t biting.

“Prices are unusually high here compared to other areas in the interior of B.C,” says Ingham. “In our little town, a used house — say, 20 to 30 years old — can be in the $1.2 to $1.4 million range. A condo can be $700,000 to $900,000, which is super high, and likely twice as much as other regions in the province.”

In North Vancouver, the median sale price for a single-family recreational property increased by 3.3 per cent year-over-year to $2,211,000 in mid-spring.

He explained that the high prices are due to the limited amount of land in prime locations, which are mostly within a two-hour drive from Vancouver. Whistler, for example, with its world-class skiing and biking and five-star restaurants, once attracted international buyers. But according to Ingham, things have changed. “Our international market is quiet compared to what it used to be. I sold properties to people from around the world — from Dubai, Australia, New Zealand, Europe.”

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Ingham suspects that current high prices, along with the speculation tax (which doesn’t apply to Whistler and Pemberton) are affecting international buying activity as buyers fear the tax could apply at any given moment.

He further emphasized the importance of addressing affordability issues to stabilize the market, citing the capital gains tax as more of a hindrance. “Affordability is at an all-time low. Everybody knows it and talks about it,” Ingham said. “Increasing the capital gains tax is not going to help at all. It’s going to make it worse.”

Ingham pointed to two of his recent sales off the Sunshine Coast. The properties were on a secluded sandy beach island accessible only by boat. One, a vacant waterfront lot, fetched $1.8 million, well above its assessed value of $1,344,000. The other was a one-bedroom cabin, which sold for $997,850, just shy of its assessed value of $1,045,000. Both sellers were motivated by the looming June 25 capital gains tax increase and pushed to secure their deals before the deadline.

Canmore, Alta., 1 to 1.5 hours from Calgary

Canmore, a region known for its majestic mountains and pristine lakes, is one of the few “cabin countries” grappling with inventory shortages. Brad Hawker, an associate broker at Royal LePage Solutions who specializes in recreational properties, says new listings in this picturesque haven are “few and far between,” making it a challenging market for outdoor enthusiasts looking to secure their own slice of alpine heaven.

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“We’re operating at about 50 per cent of what our pre-COVID inventory would be,” Hawker said. “There is absolutely no shifting into a buyers’ market. Canmore is in between a seller’s and a balanced market.”

ReMax Canada’s latest cottage report predicts a 10 per cent surge in Canmore’s average recreational property price, to $1,144,464.

“Looking ahead, I expect an active summer season and potential price increases compared to 2023. Interest rate cuts may not have a major impact on Canmore’s high-end recreational market, since many transactions are cash-based, with few buyers relying on lending,” Hawker said in the report.

Canmore is unique for both its extremely low inventory and because buyers rarely rely on borrowing to fund their purchases. As a result, few people are affected by interest rate fluctuations. Across Canada, however, about 78 per cent of recreational property buyers typically finance their purchases. This highlights the significant impact improved affordability could have now that interest rates have started to decline.

Still, beneath these market dynamics lies a fundamental truth: cottages are enduring financial and emotional assets. For most people, they are more than just real estate investments. Their value holds irrespective of prevailing economic conditions.

• Email: shcampbell@postmedia.com

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