The Canadian real estate market was hot again in May, with sales activity up 256 per cent year-over-year and prices gaining 2.4% from the previous month to stay above the red-hot $700,000 average. But if you thought it was challenging enough to purchase a detached, semi-detached, townhome or condominium in an urban or suburban housing market, you may be shocked to see the trends transpiring within the Ontario cottage country real estate. For many Canadians who plan on leaving major urban centres in favour of the province’s rural communities, rising prices and inventory shortages are making the move a challenge.

A blend of historically low interest rates, limited inventory and strengthening demand for homes in rural communities have put pressure on these one-quiet markets. After 14 months of enormous growth in the Ontario real estate market – and the broader national housing sector – what else can homebuyers do right now? Either wait for a correction or bite the bullet and make that giant leap.

What exactly does the Ontario cottage country real estate market even look like today, in popular hotspots such as Kawartha Lakes or Orillia?

Ontario Cottage Country Real Estate Sales and Prices:

Here is a snapshot of the real estate activity unfolding in the Ontario cottage country market, as reported by the CREA:

Kawartha Lakes (April / YoY)

  • Residential Sales: +273.7%
  • Single-Family Benchmark Price: +50.5% to $591,200

Muskoka (April / YoY)

  • Residential Sales: +240.5%
  • Median Price: +52.9% to $625,000

Haliburton (April / YoY)

  • Residential Sales: +237.5%
  • Median Price: +77.4% to $510,000

Orillia

  • Residential Sales: +206.7%
  • Median Price: +40.8% to $617,250

Parry Sound

  • Residential Sales: +366.7%
  • Median Price: +69.3% to $491,000

Southern Georgian Bay (Q1 / YoY)

  • Residential Sales: +254%
  • Western District Median Price: +41% to $782,500
  • Eastern District Median Price: +44.2% to $725,250

Waterfront properties are selling for a lot more than their non-waterfront counterparts. In some jurisdictions, it could take $1 million to acquire a cottage by the lake. Here is an excerpt from a piece in The Financial Post:

“Muskoka’s new waterfront owners collectively last month dropped $279.3 million to gain access to a lake view — a 354-per-cent increase from April 2020. Those high-rollers are now reshaping Muskoka living.”

The data point to the same trend unfolding across many of these Ontario cottage country real estate markets: housing inventory is approaching multi-year or even multi-decade lows. Both listings and months of inventory are notably low. Until new supply comes to market, which is unlikely to happen anytime soon in the province’s cottage country, prices will likely continue to climb.

Rural Ontario Real Estate Bubble?

In the immediate aftermath of the first wave of the coronavirus pandemic, many families – after spending months together confined under the same roof – decided that they needed more living space. Understanding that additional space in the big cities and suburbs of Ontario comes with a hefty price tag, many assumed that they could migrate to a smaller, more rural community and buy more space in a detached house. While this may have been a successful strategy in the first few months of the pandemic, pent-up demand soon made it clear that these Ontario municipalities were no longer an “easy buy.”

At first, it might be perplexing. Why would the broader Ontario real estate market be booming in an economic downturn, while tens of thousands are out of work? The consensus suggests a few reasons:

  • Families from large cities use the massive profits from their houses or condos as leverage in bidding wars to prop up prices and secure the property.
  • Record-low rates allow homebuyers to borrow more, giving them more purchasing power and more options.
  • The sudden influx of homebuyers flooding the market dried up housing stocks, and supply has yet to catch up to the ferocious appetite for real estate.

These are only some of the factors to justify the meteoric ascent of housing prices.

With price growth peaking and the possibility that the froth could be seeping out, are the late-to-the-game buyers setting themselves up for negative equity at this point? Robert Kavcic, the senior economist at BMO Capital Markets, warned that the post-coronavirus economic recovery would create a situation whereby families buying cottage country homes today will be stuck with sky-high prices for many years.

“Vaccinations are broadening; listings are becoming more ample; and a different tone from the BoC has at least shifted the conversation a bit on interest rates (weekly surveys of price growth expectations have finally backed off a bit),” he wrote. “Even if we build in some permanence because of things like work-from-home and scarcity of waterfront, it’s still not hard to see a scenario where froth comes out and the last buyers in (especially in a blind-bid scenario) are faced with years of negative equity.”

Is There Hope for Young Canadian Homebuyers?

It has been widely reported that the housing affordability crisis is producing a challenging situation for younger Canadians, and specifically for first-time homebuyers. Whether it is saving up for a down payment or being priced out of the market, prospective buyers are being dealt a terrible hand, especially as a missed investment opportunity for their winter years. Recent surveys show that the young generation is losing hope of achieving home-ownership, whether in the cities and suburbs of Toronto, Hamilton and Ottawa, or the once-sleepy small towns dotting Ontario’s cottage country. An increase in inventory to loosen these tight market conditions might be the only solution to these home-buying woes.