Muskoka Real Estate Market Update – Year End 2018

It became obvious as 2018 wound down that the recreational market place was not immune to what was happening on the broader economic front. Throughout 2018 borrowers in the Toronto and area market place were reluctantly pulling in their horns, forced to do so by rising interest rates and borrowing costs, mortgage stress testing, and a 15 percent foreign buyers tax. By the end of the year Toronto and area sales had (on a year-over-year basis) declined by approximately 15 percent and average sale prices were off by more than 4 percent. It is anticipated that 2019 will be a year of sluggish sales and some moderation in average sale prices, particularly for higher priced homes. The same market scenario will likely play out in recreational property markets as well.

Interestingly sales volumes will to some extent by impacted by declining inventory levels. For example, in 2018, 1110 waterfront properties came to market in the combined Townships of Muskoka lakes, Bracebridge, Gravenhurst, Lake of Bays and Huntsville, almost a 10 percent decline from the 1224 properties that became available in these regions in 2017. It is even more concerning when 2018 inventory levels are compared to 2016 and 2015. During these years 1419 and 1594 recreational properties respectively came to market. Between 2015 and 2018 inventory levels have decreased by more than 30 percent.

On Muskoka’s big Lakes (Lakes Joseph, Rosseau and Muskoka) the same pattern has emerged. In 2015 there were 515 properties listed for sale on the big Lakes. This year that number tumbled to 332, a decline of over 35 percent. The same is true for Lake of Bays and the big Huntsville Lakes, although that decline has not been as dramatic.

Its not surprising that with declining inventories, sales have also declined. Combined in the Township of Muskoka Lakes, Bracebridge, Gravenhurst, Lake of Bays and Huntsville there were 684 recreational properties reported sold in 2017. In 2018 that number dropped to 565, a decline of more than 17 percent.

There was a similar decline in sales on Muskoka’s big Lakes. In 2017 there were 220 recreational properties reported sold, a number that declined to 165 in 2018. This represents a 25 percent drop in sales, which is consistent with the decline in inventory over the same period. On the basis of percentages, the decline in sales of properties having a sale price of $3,000,000 or more was greater than properties having sale prices lower than that.

It is interesting to note that not only were there few higher priced properties that sold in 2018, but it took longer for these properties to sell in 2018. In 2018 all properties in this category sold in 66 days. In 2017, which was a record year for the market, all recreation properties sold in only 59 days. Between 2014 and 2016, recreational properties in this price point sold, on average, in 73 days. Days on market in 2018, therefore, were consistent with historical norms. Although days on market increased between 2017 and 2018, there was no difference in the ratio between sale price and list price. In both 2017 and 2018 all properties sold at 95 percent of their original sale price.

The Muskoka and area recreational market place is varied and not homogeneous. As a result, it is difficult to determine what happened to average sale prices in 2018 with any accuracy, especially given the categories of properties that have sold and the numerous recreational locations. But evidence indicates that the average sale price for properties reported sold on Lakes Muskoka, Rosseau and Lake Joseph declined by 6.5 percent, from $2,211, 372 in 2017 to $2,069, 142 in 2018. If we include sales of properties (over $500,000) in the Lakes of Bays and Huntsville region, the decline in the average sale price is approximately 7.5 percent, from $1,994,810 in 2017 to $1, 843, 627. Interestingly, sales data of all recreational properties combined, which includes lower priced properties, indicates a substantial increase in the average sale price year-over-year. In 2017 the average sale price was $450,000, in 2018 the average sale price climbed to $650,000, an eye-opening increase of 38 percent.

What does all this market information tell us? It appears to be giving us the same signals that the market is projecting in the greater Toronto area. Lower priced properties are very much in demand and when available are selling briskly, putting upward pressure on prices. The urban equivalent would be condominium apartments. In the greater Toronto area average sale prices for condominium apartments increased by 11 percent. They are in demand primarily because they are affordable, even with the market pressures of increased borrowing costs and mortgage stress testing.

Under the prevailing economic landscape, the upper end of the market in the greater Toronto area has seen a considerable pull back, both in terms of sales volumes and average prices. The most recent data indicates a considerable decline in the sale of properties having a sale price of $2 million or more. In 2017, 3,435 properties were reported sold in this category. In 2018 only 2077 properties sold at this price point, a decline of almost 40 percent.  Average sale prices for this category of properties declined by 8%. Although property sales in recreational markets in this price point are discretional to a greater degree than urban markets, they will not be entirely immune to these market pressures.

Notwithstanding these turbulent conditions, Chestnut Park’s Port Carling office managed to beat market expectations by exceeding the next closest competitor brokerage office by more than 50 percent in dollar volume sales. Chestnut Park’s sales representatives were responsible for more than $250 Million in recreational property sales. Given the lack of inventory and the market pressures that have been discussed in this Report, this is a sterling performance.

As we go forward into 2019 the market challenges that have been discussed will continue to be at play. Next year will be a transitional year when less foreign capital, increased borrowing costs and stricter financing qualifications will impact the decision making of buyers and sellers. Added to these factors is the lack of inventory and supply in all price points, but especially properties having a value of less than $1.5 Million. As the year unfolds pricing will be the key to sales in the new normal that buyers and sellers of recreational properties will be adjusting to.

Muskoka Real Estate Market Update – May 2017

The best way to sum up the Muskoka and area recreational marketplace at the end of May is as follows: the number of sales is increasing, while the volume of available inventory is decreasing. This is clearly not an ideal market scenario, particularly for hopeful buyers.

The story on the inventory side unfolds as follows. Generally, both for recreational and residential properties, the numbers are down. The Muskoka – Haliburton Association of Realtors reports that year to date it has processed 3,964 listings in Muskoka, Haliburton and Orillia. That compares to 4,365 during the same period last year, a decline of 10 percent. The decline in available recreational properties is even more severe.

At the end of May there were only 726 properties available for sale across the entire region. Last year there were 1,123, a staggering decline of 35 percent. At the end of May 2015 there were 1,348 recreational properties available for sale. The same is happening in the three major regions in which Chestnut Park is active.

In the Haliburton Highlands there were only 154 properties available for sale, a decline of 39 percent compared to the 253 that were listed for sale in 2016. In 2015 there were 337 recreational properties available for potential buyers to purchase. Supply in the Haliburton Highlands has dwindled by about 55 percent in two years.

Lake of Bays is following the pattern of the Haliburton Highlands. At the end of May listings of recreational properties were down to a mere 75, a sharp 30 percent decline compared to the 105 available last year. In 2015 there were 132 available properties.

Although there are more properties available on Muskoka’s big lakes, Lake Rosseau, Lake Joseph and Lake Muskoka, on a percentage basis the decline in available inventory is the same as that in Lake of Bays. At the end of May there were 273 properties listed for sale, a 30 percent decline compared to the 337 available last year. In 2015 there were 382 available recreational properties.

Notwithstanding these declines in available inventory, sales of recreational properties are on the rise in all regions. Over all the Association reports that 400 properties have been reported sold year-to-date. That represents an increase of almost 12 percent compared to the 359 properties sold in 2016. In 2015 only 278 recreational properties were reported sold at this time of year.

The region showing the greatest increase in sales year-over-year is Lake of Bays. Last year at this time a paltry 27 recreational properties had been reported sold. This year that number has jumped to 45, an increase of 66 percent.

Sales on Muskoka’s big lakes are also up. Last year 91 properties were reported sold. At the end of May 2017, that number has climbed to 108, an increase of almost 19 percent.

The only region showing a decline in sales is the Haliburton Highlands. I suspect that that decline is due to a supply shortage rather than a lack of buyer demand. It must be remembered that inventory decline in the Haliburton Highlands was greater than any other region. Last year 111 recreational properties were reported sold, this year only 101, a decline of approximately 10 percent.

A decline in supply in conjunction with rising sales usually means rising average sale prices. A look at sales and average sale prices for all reported sales on Muskoka’s big indicates that year-over-year prices are rising. In fact prices have been rising since 2010, with, of course, fluctuations on the various lakes depending on the volume of very high priced properties that have been reported sold.

In May the average sale price for all properties reported sold on Lake Rosseau, Lake Joseph, and Lake Muskoka was $2,139,214. Last year the average sale price for all recreational properties reported sold on the big lakes was $1,962,797. This represents a year-over-year increase of 9 percent. Compared to the average list price for all properties sold on the big lakes the sale-to-list ratio is approximately 95 percent, only slightly better than the 94 percent achieved in 2016.
Chestnut Park’s number year-to-date have been very strong, notwithstanding the dramatic decline in inventory. Chestnut Park continues to be the dominant brokerage in the Port Carling area, outdistancing the next nearest competitor office by more than 33 percent in dollar volume of reported sales. Chestnut Park’s sales representatives were responsible for approximately 27 percent of the dollar volume of all reported sales. Chestnut Park’s sales have totaled more than $98 Million to the end of May.

At this stage it is difficult to forecast how the latter half of 2017 will unfold. The Provincial Government announced measures to cool the red hot Toronto and area residential resale market on April 20, 2017. For the most part those measures do not apply to the Muskoka and area market, yet the psychological affect of those measures may in infiltrate the Muskoka market and cause and cause buyers to be more deliberate and patient. Most of the measures announced in April should have had no impact on the Toronto market – only 4 to 5 percent of all buyers were foreign buyers – yet the market in the greater Toronto area is o by approximately 20 percent year over year.

Muskoka Real Estate Market Update Spring 2013

The Muskoka real estate market started the first third of the year in a slower gear than it did during the same period in 2012. This was true for the entire recreational marketplace, including Haliburton Highlands (where Chestnut Park now has a presence), Lake of Bays and the Muskoka Lakes. At this stage the explanation for this slower market pace is two fold. Early data indicates that substantially fewer properties have been listed for sale by sellers. Less inventory means fewer sales.

The explanation for the decline in available recreational properties for sale is due to weather conditions. The 2012 winter was extremely mild. Access was made easy, and the warm conditions in March and April resulted in numerous sellers listing their properties early in order to take advantage of conditions that were conducive to spring viewings and sales. The winter and early spring of 2013 have been the polar opposite of 2012. Substantial amounts of snow made access difficult, and weather conditions were anything but conducive to cottage viewings. In April the region experienced severe flooding, with many boathouses, and in some cases cottages, submerged in water. Even as this report is being prepared (early May) the lingering effects of the flooding in the region are still negatively impacting the recreational resale market.

In the first third of 2013 overall recreational sales as reported by the Muskoka, Haliburton, and Orillia Board were off by 26 percent. In 2012 130 sales had been reported, whereas only 93 were reported this year. Sales on the Muskoka Lakes, Lake of Bays, and in the Haliburton Highlands were all off by 20 percent. On the Muskoka Lakes from 25 to 18 sales, 20 to 16 on Lake of Bays, and 35 to 28 in the Haliburton Highlands.

Although the correlation to inventory levels is not identical, the connection between lower sales and available properties for sale is quite apparent. Total active listings at the end of April for the region were down by 20 percent, from 1027 in 2012 to 822 in the first third of this year. The Muskoka Lakes have seen a 17 percent drop in inventory from 240 available properties to 199. Lake of Bays shows only a 6.3 percent decline, from 110 to 103, with the highest decline in the Haliburton Highlands, from 295 to 231 available properties, a drop of 21.5 percent.

The first part of the year for recreational markets is not an accurate barometer of how the market will perform throughout the remainder of the year. There is no doubt that the pace of sales will increase, however, the assessment of the market at the end of 2012 continues to apply. The softening of sales throughout Canada, and in particular in the major metropolitan areas like Toronto and Vancouver will have an impact on recreational property sales. High-end property sales in Toronto have experienced a substantial decline. Although not all the factors impacting high-end property sales in Toronto apply to Muskoka and the region (i.e. the double land transfer tax) buyer resistance to real or perceived inflated prices will be the norm in 2013.

As was indicated in the year-end market report, the key to sales is pricing. Recreational properties represent discretionary purchases. In times of instability, that is broader markets that are showing some weakness, discretionary purchases, not driven by need, cause buyers to sharpen their pencils, ensuring that there is value to their purchases. Realistic pricing will always overcome the broader economic considerations that may be negatively influencing buyers.

Prepared by: Chris Kapches, Senior Vice President and Legal Counsel Chestnut Park Real Estate Limited, Brokerage