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It makes sense to take advantage of the slower market in cottage country

Prices for Muskoka area waterfront properties are expected to remain fairly flat for 2024, according to Gord Waites, Sales Representative with Johnston & Daniel Rushbrooke Realty in Port Carling.

Gord explains there are several factors influencing prices, including interest rates, supply and demand (inventory) and market corrections from the substantial increases from the pandemic period of 2020 to early 2022. As well, travel was up in 2023 and is expected to remain so in 2024, which is having an effect on both cottage purchases and rentals.

Unit sales slowed during 2023 and continue to be relatively flat for 2024, which means it could be the right time to buy for the savvy purchaser. Especially if you aren’t disrupted by, or can withstand, higher interest rates in the short-term.

Interest rates are having a significant impact on lower priced cottage properties. For example, properties under $2 million represented only 24 percent of sales in 2023 versus the norm of 46 percent over the previous three years. The over five million part of the market was more robust in 2023, representing 31 percent of sales versus 21 percent in 2022.

“Often people in the entry level purchase a cottage and then rent it out for a portion of the time to help make payments,” says Gord. “That’s not happening as much now due to fewer renters visiting the area, with travelling abroad resuming and new regulations around short-term rentals.”

With the first – albeit small – rate cut taking place in early June and more expected through 2024 and 2025, the cottage real estate market should begin to pick up. Once interest rates fall further, the market will likely accelerate in both volume and pricing. That move is predicted to take place in 2025 and 2026.

Supply & DemandWhen looking at the real estate market, Gord says one of the best metrics to look at is Months of Inventory (MOI), or supply and demand. This measures the amount of time it would take to sell the current inventory at the current sales rate. Anything below four months is considered to be a seller’s market. Four to six months indicates a balanced market and over six months is a buyer’s market.

At the height of COVID, inventory dropped to a record low of 1.9 months during the main selling season. In 2023 it rose to a more balanced 6.1 months.

“We expect 2024 to be a moderate buyer’s market as more inventory becomes available,” says Gord.

There are also more properties staying on the market for longer as a return to pre-pandemic life settles in. While multiple offer situations do still occur, they are no longer as common. And most offers are being made with conditions such as home inspections, financing, and due-diligence clauses.

Price trendsBefore the pandemic, waterfront properties in the Muskoka area appreciated by an average of just over seven percent annually from 2000 through 2019. Then the dramatic bump occurred during COVID which saw average and median prices for recreational properties increase by roughly 45 percent. Prices peaked in the first half of 2022, then declined in the second half of 2022 and further in 2023. “We expect them to be flat for 2024,” says Gord.

“When we look at cottage prices since 2000, if COVID hadn’t happened and prices simply rose according to historic trends, then today’s prices are within six to nine percent of where they would have been without the COVID effect,” explains Gord. “Simply put, the significant bump in prices caused by COVID is working itself out now as the market adjusts.”

Once interest rates begin to fall, he expects the market to pick up, both in unit sales and price appreciation, likely in 2025 and 2026.

“We feel we are at or very near the bottom of the market at this time; it’s only the interest rates that are holding people back,” says Gord. “But for those who can afford it for the next few years until those rates fall even further, this is an excellent time to buy.”

“Overall, we see that while the market has adjusted, real estate in the Muskoka area continues to be an excellent investment.

www.GordWaites.com

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