Paradise lost?

Van money guru interviews Garth Turner, here.

Even Re/Max admits cottages taking price plunge


business reporter
Higher gas prices and an uncertain economic outlook means cottage country is becoming further out of reach for some buyers – even as prices soften for some Canadian recreational properties.

After a decade of substantial price increases, a significant jump in listings on the market and fewer buyers have resulted in starting prices that have started to decline in some areas, according to a report by ReMax Ontario Atlantic Canada released today.

Of 45 Canadian markets surveyed, ReMax says 67 per cent reported falling sales.

While most markets saw prices remain flat or increase slightly, some areas are starting to see decreases for the first time. Starting prices in popular Ontario towns such as Haliburton, Bancroft and Parry Sound were down from 10 to 20 per cent, according to ReMax.

In Haliburton, a starter waterfront cottage can be bought for $275,000, down from $350,000 last year. In Parry Sound, a similar cottage can be purchased for $180,000, down from $200,000.

“It’s been a sluggish market. I think given the economic conditions you have to have your head in the sand if you don’t acknowledge that there’s a correction around the corner,” says Muskoka-based realtor Anita Latner.

With the Ontario economy slipping into what may be a technical recession as the manufacturing sector takes a major hit from layoffs and downsizing, discretionary purchases such as vacation homes are typically the first to go.

During the real estate bubble of 1989, prices on cottages fell much more quickly than on primary homes, as buyers unloaded non-core investments.

Parry Sound-based realtor John Sallinen says sales are about 20 per cent down from the same time last year, with properties taking about twice as long to sell.

“Buyer’s aren’t rushing. They’re taking their time and there’s much more to choose from,” says Sallinen.

Meanwhile, higher gas prices have also made some buyers think twice about heading out of town every weekend.

“It’s certainly a consideration,” says Sallinen. “It’s one more thing that people have to think about.”

“There’s no subway to where we’re going, so you have to take the car or the van. And it can take a psychological toll if you feel like you’re getting ripped off paying these prices,” said Latner.

Sallinen says he’s already seeing the effect. Couples who may take two cars to the cottage, with one partner going up early during the week, may now decide to make one trip, for example. Others may not travel to the cottage as frequently.

However, Sallinen he hasn’t lost a sale because of gas prices yet.

“They will find a way to get to the cottage if they have to,” he says.

Latner expects tourism in cottage country to be hit first by gas prices, followed by cottages on smaller lakes.

“The day trippers – people who might have driven up for a picnic – and older folk who may have had a cottage in the family for decades will probably get hurt first,” says Latner.

That scenario would be less likely in Muskoka, where a dozen properties have sold for more than $1 million already in the first four months of the year.

“If you have to worry about gas, then you’re probably not buying a property in Muskoka,” says Latner.

Still ReMax says there is already softening in the upper end of the market, above the $2 million range.

Another reason for softer sales is competition for recreational properties from the United States. Instead of buying a second property in Ontario, buyers are now looking at Florida and Arizona to take advantage of the strong Canadian currency.

With the depressed U.S. market, some American properties are half the price they were only a year earlier. Conversely, American buyers are not as prevalent since the loonie hit par with the greenback.

Another reason for softer sales has been an exceptionally cold winter, say realtors.

“Take what you got in Toronto this winter and double it,” says Latner.

Realtors blamed the exceptionally cold winter for the rocky start to the cottage market. I’ve had clients who haven’t seen their cottage when it wasn’t raining this year.”

33 comments ↓

#1 m. on 06.11.08 at 8:20 am

Realtors blamed the exceptionally cold winter for the rocky start to the cottage market.

You know things are getting tough when the realtors are blaming the cold winter in June. I predict that the cold winter will bring down the sales in July and Aug. as well. Also Sep., Oct…

#2 blab on 06.11.08 at 8:22 am

this is good news —> means GTA prices are gonna drop eventually and all the RE agents who are in denial can now take their heads out of the sand :-) :-)

#3 Realtors Panicking on 06.11.08 at 8:57 am

Recreational properties are a “canary in a coal mine”.

They are the first to see price drops and a indicator of a broader Real Estate correction as was the case in 1990 when cottages got hit first.

“Non-core” investments are usually the first to go.

#4 Realtors Panicking on 06.11.08 at 8:58 am

By the way, I love the quote:

“I think given the economic conditions you have to have your head in the sand if you don’t acknowledge that there’s a correction around the corner”

#5 JB on 06.11.08 at 9:07 am

Come on. The weather, again?

#6 David on 06.11.08 at 11:08 am

Recreational property markets are different from the residential market. For the past decade there was a huge imbalance between those who wanted to buy and available properties for sale. In older developed areas many of the properties were of a hereditary nature passed down from Grandpa and Dad etc. There were many restrictions on building in provincial and federal parks so getting a cottage lot got a lot more difficult. Recreational properties do not qualify for CMHC insurance, so people wanting to buy either had to cough up a 25% equity contribution or take a HELOC against the primary residence to come up with the down payment.
The high cost of fuel is probably the real deal killer now as is operating overhead and taxes for what amounts to a part time residence. Heading into a recession as is happening now really helps bump recreational properties down the family priority list.

#7 MMM on 06.11.08 at 11:20 am

Canadian real GDP growth has been negative
within December 2007(-0.7%) and first quarter 1Q/2008(-0.3%). UNEMPLOYMENT RATE in Ontario from 5.9% last year again jumped up to 6.4% (May/08)
and to Mid-09 will be 7.0%.

About Residential ReSales in GTA in 2008:

Feb.2008 sales decreased 11.2%
Mar.2008 sales decreased 22.2%
Apr.2008 sales decreased 7.3%
May.2008 sales decreased 16% avg.price $398,148
and inventory listings are up 15%.
Did anybody see the thousands signs on Houses “For
Sale By Owner” in NorthWest Brampton?
“And still in this situation and to date, it remains a sellers’ market,I think now that buyers have more
(expensive) choises on the Market”
said President of TREB, Ms.O’Neill.
This Trend of sales shows that in 2008 will have about 79,800 sales or the same volume as 2003.
So the value of houses are the same as 2003.Period.
What’s mean market value? If the product is on demand than the price will going up (gold,oil,materials,food etc.). Unfortunatly about Real Estate Market in Canada is something different market and will be forever selers market?

#8 Sam on 06.11.08 at 11:21 am

This is exactly what Garth says in his book too..

come baby, come…

#9 Keith in Calgary on 06.11.08 at 11:37 am

I just love how realtors say that “buyers are taking their time” when in fact the buyers are disappearing……not “taking their time”…..

Unless you can count waiting 10 years for this thing to shake out before I consider buying…….heh.

#10 Jed on 06.11.08 at 12:02 pm

I certainly have not seen any correction for the Muskoka cottage markets. Blaming the weather and gas prices is not real. People that have been planning to purchase recreational property just didn’t wake up this morning and decide they would like to own one. Its a longer term plan.

People are anticipating a downturn and are waiting or shopping for deals I suspect. I just do not see any fire sales happening on these properties yet as the aging boomers who are the majority are fairly well financed and know what they want.

#11 brazer on 06.11.08 at 12:58 pm

Pace of Canadian home price increases slow
http://yourhome.ca/homes/article/441160

“It was the third straight month in which the increase has decelerated, and the slowest rate of growth since September 2005.”

#12 brazer on 06.11.08 at 1:03 pm

Lack of rate stimulus draws fire
Decision to freeze key overnight rate at 3% while economy sputters rattles market watchers
http://www.thestar.com/Business/article/440822

Garth, would you care to share your insights on:

1) the possibility of stagflation moving forward
2) what the BofC will do at their next meeting in July

#13 martha stewart on 06.11.08 at 1:08 pm

lower real estate prices is a good thing!

#14 zzz_ddd on 06.11.08 at 1:49 pm

to MMM,
good observation about NW Brampton,
re-industry is always “carnival crew”.
Any “carnival’ crew” sacred responsibility to entertain public with “songs/music”: otherwise nowbody is going to buy.

Seen that in USA 2 years ago: read thehousingbubbleblog.com or housebubble.com about day to day developments.
We are 2 yrs behind (like always: remember hi-tech bust)
USA re-crews and trolls on this kind of blogs were singing the same cheerful songs until their Titanic did not sank:
Now they are all clients of pawn shops: selling the last “instruments” of their trade (watches, diamonds, etc) some of them close to suicides (read Mike Morgan reporting from Florida).

#15 Andrew on 06.11.08 at 2:10 pm

Wednesday, June 11, 2008
JPM Analyst: House Prices may fall 30%
by CalculatedRisk
Important note: Reuters has corrected the story. It now reads:

Home prices may fall 25 percent to 30 percent from their peak in 2006 and not hit bottom until 2010 …
This is much more in line with my thinking. Note that nominal prices are off 16.1% according to Case-Shiller, so we are about half way to JPM’s forecast.

Here was the orginal post:

From Reuters: US home prices may dip 30 pct, junk bonds weaken-JPM
[Peter Acciavatti, credit analyst and managing director at JP Morgan Securities Inc, said] Home prices may fall another 25 percent to 30 percent over the next four years, with greater drops still in subprime mortgage debt markets, he said.

In a separate interview, the analyst said junk bond spreads will push past 800 basis points and may top 900 basis points as the crisis drags out.
I think we will see price declines for several more years, but this seems a little too bearish to me. An additional 25% to 30% decline in nominal prices over four years would be close to an additional 40% decline in real prices – and that would put real prices at the lowest level since the Case-Shiller Index started in 1987. Note that real prices are already off 21% according to the Case-Shiller national index.

Wow. And I thought I was bearish on housing!

Note: My comments were based on the original article forecasting an additional 30% decline in prices.

#16 Joe Realtor on 06.11.08 at 2:32 pm

You know, not all Realtors are in denial about the market downturn.

I’ve been trying to tell anyone that’ll listen for some time now that we’re already in the midst of a correction, and that the new GTA land transfer tax is only part of it. Most people don’t want to hear it.

Just yesterday, someone in my complex was outraged that one of our neighbors put their 1100 sq ft, 2 bedroom townhouse on the market for only 430,000. “They’re bringing down all of our market values!” he claimed.

When I said that we’re in a correction and market “value” is only what someone is willing to pay, I got the old brush off. Heck, I know someone else in the same complex that just sold after several months, several Realtors and several price reductions. (Granted their first list price was way past realistic)

What do I know after all? – I don’t watch Home and Garden TV.

#17 Joe Realtor on 06.11.08 at 2:36 pm

For what it’s worth, I wouldn’t say Realtors are panicking.

Well maybe the sleazy, unprofessional ones (of which there are many) are.

The rest of us know how to weather the ups and downs of the market and some do even better in “poor” times.

#18 vultur on 06.11.08 at 3:05 pm

Only buy a cottage if you can afford it. There should never be any expectation of appreciation for something so discretionary, particularly when comparable cost of renting wouldn’t cover the owners tax and maintenance costs.

I’m going to buy a lowball offer on that Lake Muskoka listing. Anyone have any advice on where I should come in at?

#19 Islander on 06.11.08 at 6:52 pm

Joe’s right. Sellers are in denial more than realtors.
The typical seller will call around for as many free appraisals as he or she can obtain. Then pick the highest one as a listing price.
When it doesn’t sell, it’s the realtor’s fault.
Well, here’s something neither sellers nor realtors want you to know:
Price sells. Price it right and someone will buy it. Price it too high and it won’t sell, regardless of the dog&pony show your realtor puts on. The honest ones – and there are a lot more than many consumers are willing to acknowledge – will give you honest price advice. It’s up to you as a seller whether to take that advice or hit the Greedy button.

#20 GenXer on 06.11.08 at 9:19 pm

From Financial Post – March 18th, 2008 – Most boomers will stay put in retirement

60% of Canada’s baby boomers intend to remain in their current community when they retire, according to RBC’s 15th annual home ownership study.

Thus, 53% of 1238 boomers born between 1946 and 1965 intend to remodel their homes, while 19% expect to undertake major renovations. And 24% also intend to buy a second property or vacation house.

61% of the boomers surveyed still have a mortgage although 83% believe it’s important to have them paid off before retirement. 22% believe their home will their primary income source in retirement (presumably through home equity lines of credit or reverse mortgages).

– Hopefully the recent reports of corrections will make more retiring boomers think twice about “investing” in recreational properties. No one should be thinking of over-investing in any individual asset class within a decade of retirement. Real Estate, with its long price cycles allows no time for a retiree to wait out a market correction, making it a horrible investment, particularly for early boomers.

So sad to hear that 1/5 of this fairly wealthy generation is hoping that real estate will fund their bridge lessons – if we do see real estate convert to a long-term depreciating asset, a whole generation will be at risk of losing their standard of living.

Garth – please push wherever you can to increase the level of financial education in our school system.

I am married to a teacher, and currently the only math / finance course offered in high school that provides training on mortgages, lines of credit, budgeting, etc. is aimed at the most at-risk students as a way of providing them with a last resort credit required to graduate. Students on their way to university and college never come across solid financial training in a world where the financial system is waiting to take advantage of them. Reforming our school system is the only way to ensure the upcoming generation doesn’t fall into the wealth trap those before them fell prey to. …That, AND resisting the urge to buy granite countertops and lease expensive cars.

#21 vancity dude on 06.11.08 at 10:04 pm

a picture is worth a thousand words:
.
.
http://langley-financial-planning.blogspot.com/2008/06/photos-of-real-estate-bubble-hood.html

#22 jrochest on 06.11.08 at 10:08 pm

This is a little broader than just Ontario: the Vancouver Sun has an article drawn from the same press release that suggests that the prices in BC are falling too.

http://www.canada.com/vancouversun/news/business/story.html?id=1668d2ec-eb73-400b-94fc-6d2f8497ffae

Sounds like anything that isn’t the family house is being deep-sixed.

#23 patriotz on 06.11.08 at 11:27 pm

Home prices may fall 25 percent to 30 percent from their peak in 2006 and not hit bottom until 2010 …

“May”? SD, LV, Miami and Phoenix are all down over 25% already, and this show is a long way from being over.

Note also that a 25% decline in the nationwide median in the US would represent much more than a 25% decline in total valuation, because of the skew towards the high-priced markets.

#24 Joe Realtor on 06.11.08 at 11:54 pm

Thanks Islander for mentioning that greedy button.

I’m thinking of getting one made up like that Easy button from Staples with “greed” written on it – could lighten up some stressful moments!

Even in todays depressed market, I run into many sellers that want to “hold back offers” (set a date to accept offers), even when I strongly advise against it. They still want and expect bidding wars.

Imagine my lack of surprise when:
a. we don’t get any offers

b. we get 2 or more offers and the sellers want to send all of them back – wanting more. (I’ve had more fights with clients over this stunt – I would never do it on my own) These days you’re lucky if anyone comes back to the table.

c. don’t get any offers for a month, showings dropped off, then get an offer with the closing the sellers want, $50,000 cash deposit, but the sellers don’t want it because it’s $10,000 less than what they “planned” on getting.

d. you give people a realistic view of what their home will likely fetch – usually a range of 10,000. They then ADD 10 or 15 grand to that and then get indignant when they don’t get any showings in week two.

The future will be interesting.

#25 Another Albertan on 06.12.08 at 1:12 am

@GenXer – You are looking a lot of effort to make our population numerate. I see cadres of multi-degree technical professionals who are “numerate” (can eyeball fluid dynamics or can run multi-million dollar portfolios for others) but who can barely balance their own cheque books.

Want to get results faster? Take a play on Shakespeare and kill the marketers before killing the lawyers.

People being led to believe that they are “special snowflakes” is a bigger root cause of our current ills than is the inability to estimate tip at dinner. Tackle the implications of geometric progression after curing people from the “GET! GET! GET!” mentality.

#26 Another Albertan on 06.12.08 at 1:22 am

I find it rather interesting that all the major fishwrap dailies all have articles within a day or so of each other quoting that recreational properties are “off”. Each paper appears to be quoting a regional expert… one for Ontartio… one for Alberta… one for BC, etc.

I would not be surprised if there was now much more coordination between the various real estate boards to ensure their message is consistent as much as is possible.

#27 tim Pellett on 06.12.08 at 8:38 am

Bla bla all from the realtors for that all they do boy there good at it.
Ha I live up here and to tell the truth it’s been softening for three years
You do not have to be a realasnake agent to see what has been happening for I have a set of eyes and I use them.
Parry Sound Muskoka has been in a depression for three years
I am a artist like many have seen the pocket money of the people disappear and has had a great impact on the economy up here to a point were I do not do any of the shows any more and have retired from it do to the fact people do not have the pocket money that they used too. They don’t have it, there not spending it.
There has been over 1400 manufacturing jobs lost up here in the last three years. And that snake oil salesman Tony Clement has manipulated the numbers by changing the boundaries of Parry Sound, Muskoka . Muskoka is now part of there southern stats that include right down past Midland. And Parry Sound is for stats purposes part Nippising and right to include North Bay ,Sudbury. Tony the snake oil salesman did not put that in his junk mail or press releases. Plus the media has not picked up on this witch is a out rite shame. O Garth can you get the media on this for they have missed it.

#28 Jed on 06.12.08 at 9:20 am

I thought this particular thread was about Cottage property?

To Vultur about Low Balling a Lake Muskoka property. This all depends on the property. Lk Muskoka is the largest of the Big 3 lakes and has far more older and tired cottages that are more affordable then Lk Joe or Rosseau.

Its all about the quality of the lake frontage. Lk Muskoka has some areas that are not very desirable so do your research. I recommend that you look (walk them) at least 20 or more properties first. I don’t see too many bargains as of yet but who knows as there are many cottages that middle class families simply cannot afford to carry due to taxes, maintenance etc

#29 sum1 on 06.12.08 at 11:42 am

Another Albertan-
that is because every major media outlet (magazines/tv/newspaper/internet”news”sites/radio)across canada is run/owned by two media conglomerates. They decide what you are given as “news”. What you/we collectively see the world as, we see through the filter of thier choosing. See my previous comment “the media has you by the balls” and read the vancouver based magazine “Adbusters” it is a little over the top, but a good alternative choice to “Macleans”

#30 redshirt on 06.12.08 at 3:09 pm

Realasnake agent, that’s brilliant, Tim! I Googled it and nothing showed up, so you just coined a brand new term.

One thing I find interesting about the article about the Boomers staying put is this… if they draw on their home equity line of credit for retirement, then at some point when these Boomers kick the bucket the bank is going to be stuck with a lot of houses that they are going to dump on the market.

Nevermind 5 or 10 years from now to buy a house, it may be more like 15-20 years before house prices will stop bleeding. This is turning into another Japan.

#31 Suzukimum on 06.12.08 at 11:38 pm

Rise interest rate rise….

Go to the Globe and Mail link:
http://www.reportonbusiness.com/servlet/story/RTGAM.20080612.wmortgagerates0612/BNStory/Business/home

#32 brazer on 06.13.08 at 7:15 am

http://news.yahoo.com/s/ap/20080613/ap_on_bi_ge/foreclosure_rates

“The number of U.S. homeowners swept up in the housing crisis rose further last month, with foreclosure filings up nearly 50 percent compared with a year earlier, a foreclosure listing company said Friday.”

#33 Jim on 06.13.08 at 12:40 pm

Here are some new stats on Muskoka Cottage property

There have been fewer sales on Lake Muskoka, Lake Rosseau and Lake Joseph this year than in previous years by this date.

This has also been a very bad year for water and weather conditions, and this affects the real estate market.

By the end of May 2008:

Lake Muskoka had 24 sales, compared to 31 in 2007 and 28 in 2006

Lake Rosseau had 6 sales, compared to 10 sales in 2007 and 13 sales in 2006

Lake Joseph had 7 sales, compared to 10 sales in 2007 and 16 sales in 2006

also an interesting article from the Kingston, Ontario area

Expert expects cottage boom
http://www.thewhig.com/ArticleDisplay.aspx?e=1071807