Is now the right time to buy a cottage?

October 8, 2009

Is now the right time to buy a cottage?

By Deirdre McMurdy, May 15, 2009
Your dream of owning a cottage may (finally!) come true as cabin fever turns cold.

Cottage country has been turned into a buyers' market for bargain hunters.

Realtors in cottage and cabin markets across Canada are hoping that this spring, the grass won't be the only thing that turns green. After watching prices and sales volumes fall steadily over the course of last year, they are crossing their fingers that low interest rates, weak returns from other investment categories and even lower gasoline costs will translate into sales.

Whether the economic tide is starting to turn or not, there's no question that consumer interest in real estate is stirring as the weather warms. This week there were reports that the number of business failures are off sharply because Canadian companies acted aggressively to reduce costs through downsizing and other cuts. Corporate debt markets are robust and the Canadian dollar has been downright frisky in world markets.

For focused bargain hunters in the recreational market, there's no question that after years of imbalance, supply and demand are better aligned than they have been. That's reflected in softer prices for re-sale properties and in generous incentives in areas where newly-constructed condominium and time-share developments are nearing completion.

In fact, it's the leisure developments that are underway but not yet complete that offer the most room for negotiation on everything from lot price, to custom upgrades, to clubhouse fees and rebates on closing costs.

In Ontario, where the provincial economy has been hard-hit by manufacturing sector woes and job loss, the overall effect has been dramatic. In the Muskoka and Haliburton cottage countries, realtor Chestnut Park reported sales volumes were off 31 per cent year-over-year in the last six months of 2008 and prices softened accordingly. Meanwhile in areas of British Columbia where Albertans have been the big spenders during the oil boom - such as Kelowna and Penticton - sales volumes are off around 60 per cent and prices are off about 20 per cent.

Given that the first four months of every year are the slowest for recreational property sales, there's been little improvement since then. And the sale price to list ration has tumbled from 98 per cent even last year, to 85 per cent.

This is welcome news for those who are in a position to access credit from a financial institution. Mortgages, after all, are based on a historically-low interest rate set by the Bank of Canada. There's stability in the fact that the central bank has pledged to keep its benchmark rate at 0.25 per cent for at least a year.

Furthermore, in areas like Collingwood, Ontario where chartered banks have exposure to recreational real estate that's in mid-development, they are co-operating with their creditors to help finance the sale of properties. (In Collingwood, for example, RBC is working with one local builder to guarantee mortgage payments as low as $500 for five years with just five per cent of the price as down payment.)

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If that's not sufficiently compelling, low interest rates and stagnant stock market returns make real estate a more attractive option for those with savings. And according to the latest Royal LePage Canada survey, 61 per cent of those who plan to buy a recreational property view it as an investment superior to stocks, bonds or mutual funds.

Despite the central bank's pledge to lock in interest rates at such a low level for a year, there are other variables in the mix. The price of gasoline, for example, is one that cuts both ways: a survey of cottage owners taken when pump prices were soaring showed that almost 20 per cent would consider selling their property if gas prices were sustained, while 33 per cent said they'd make fewer trips to the lake. On the other hand, fuel surcharges also inflated the cost of air fare, putting a damper on those with a taste for travel.

And while the Canadian market has typically been a bargain for Americans who want a recreation property, the recent relative strength of the Canadian dollar and the tremendous bargains available in the U.S. market - especially in popular areas like Arizona and Florida - have reversed the trend.

 


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