Days ago I traipsed through the iconic Canadian Shield north of Toronto. This is Group of Seven turf. Glacial lakes. Bent pines. Granite boulders. Babes on jet skis. Families have owned cottages here for generations. When a prime property makes market, it usually engenders a feeding frenzy. But not any more. Sales are down a crushing 42%.
Yesterday I went south – almost as far as you can go in this country. This, too, is prime cottage country on the north shore of a great inland lake, within two hours of eight million people. For Sale signs are endemic. My research shocked me – in the entire region over the last six months, only half a dozen sales.
Some people (I’m one of them) view recreational, cottage and hobby properties as canaries in the mine. More often than not they signal latent, unseen danger and are harbingers of things to come. The reasons are simple: most people buy second properties by borrowing against their city digs. So when the economy softens and folks fret about debt, the place by the lake is the first to be thrown overboard.
And nobody actually needs to have sand between their sheets, of course. So cottages are discretionary investments, and when economic uncertainty’s in the air, the seasonal real estate market takes a dive. That would be about now.
Add to this, entire swaths of the country where real estate is turning moribund – the Okanagan, southwestern Ontario, Fraser Valley, Halifax, Van’s vaunted west side and Brampton, for example – and it’s becoming clear the housing market is quickly stratifying. This is all more alarming (for people with too much real estate) because mortgage rates remain near historic lows. Imagine if these were normal times, and a fiver cost 7.5%.
Meanwhile scary things continue to happen in urban Toronto and Vancouver – scary because they mask what’s coming for average, mortgage-paying, homeowning, everything-in-the-house middle class folks. In 416, for example, an 80-year-old, mid-town, kinda nice house was listed recently for $1.495 million and seven days later sold in a bidding war for $2.1 million. Yes – $605,000 above asking.
And in Vancouver, despite a collapse in sales in former HAM heaven (Richmond) and the impossibly tony west side, the average SFH price last month was $1,212,265 – down a tad from May. But the salient point is that this time two years ago, that number was $819,235. That’s an increase of 47.95% in 24 months – which eclipses the greatest gains made by horny US markets leading up to the housing collapse of 2006-11.
In other words, while sober reality seems to be leveling out both sales and expectations at the lake and in a growing part of the country, urban fools in the godless GTA (Pride Capital of the World) and delusional Vancouver are stealing headlines and propagating the media myth that real estate is just peachy. Also, without a doubt, the trip back down will be a lot more colourful in those two cities than in, say, poor Regina. (There home prices will simply corrode along with the value of commodities.)
Nothing I’ve seen over the past months makes me doubt what happens next. Prices always crescendo at the end of a frothy period of excess. They invariably start the sputter and choke in suburbia. And never have recreational properties taken a hit, without pain traveling back to the city. The path ahead is clear. Lousy economic growth. Indebted families. Structural unemployment. Inflation. Creeping rates.
House values correct, then stagnate. Early vultures get creamed. Smart people leave Dodge (a.k.a. Vancouver), and invest in liquidity.
Not the kind with fish.