Recreational house prices soaring despite higher interest rates

Recreational property prices across Ontario are soaring and demand for cottage country houses continues to outstrip supply, despite interest rate increases and a return to pre-pandemic travel.

The average price of a single-family home in Ontario’s recreational regions skyrocketed by 34.6 per cent in 2021, the highest year-over-year increase in Canada, according to a new report by Royal LePage released Thursday.

“It’s not unusual for recreational properties to appreciate faster than their urban counterparts, but the sheer size of the leap forward, particularly in Ontario, is remarkable,” said Phil Soper, who has been CEO of Royal LePage for 20 years. “I haven’t seen this happen before.”

Single-family homes in Kawartha Lakes appreciated by 48 per cent, on average, between 2020 and 2021, while the price of similar properties in the Muskoka region rose by 49 per cent in the same period — nearly double the national average of 26.6 per cent .

In a normal year, about 10 to 15 per cent of properties in Muskoka would sell over the list price. Last year, however, about 60 per cent of listings sold over asking, according to John O’Rourke, a broker and the owner of Royal LePage Lakes of Muskoka.

“I know of properties that were purchased at the beginning of the pandemic at $400,000 to $500,000 that are now selling just under a million dollars. That’s sort of a common occurrence,” said O’Rourke, who also noted younger families with children are increasingly moving to cottage country.

Despite a return to pre-pandemic spending and interest rate increases, demand for these recreational properties outside of main urban centers continues to rise.

According to the report, 84 per cent of real estate experts surveyed said there is less inventory this year compared to 2021. Nearly nine in 10 respondents noted at least 75 per cent of the properties in their region are selling over the asking price.

Properties that are listed for an appropriate price are almost always receiving multiple offers, noted Soper. “It’s not uncommon for a nice property on a popular lake to receive 30 offers,” he said.

But that was not always the case. A decade ago, an expensive property in Ontario’s cottage country could sit on the market a year before it was sold, Soper says. Now, they’re usually snapped up in a matter of days or weeks.

“Though much of pre-pandemic life is returning, people still aren’t spending large amounts of money on luxury items yet. So there are savings available and it’s finding its way into places like cottages,” said Soper, explaining why the demand for recreational properties is so high.

Though the market is forecast to cool in 2022, price growth is still expected to be “exceptional” this year, Soper noted. Royal LePage predicts single-family recreational homes in Ontario will appreciate 13 per cent between 2021 and 2022.

The average recreational property in the province was worth $653,000 in 2021, but is expected to appreciate to $737,890 in 2022.

Rising interest rates will have a “blunted impact” on cooling the recreational housing market compared to other real estate markets, said Soper, noting most financial institutions already require large down payments for secondary residences, such as cottages, and buyers tend to use cash or other assets to buy these properties.

Typically, house prices appreciate by about five per cent each year, though the recreational home market fluctuates more widely, Soper says.

He predicts market growth in the recreational property sector will return to normal levels in 2023, when pre-pandemic spending habits return.

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