Why Cottage Prices Are Increasing so Much This Year
With the pandemic, a lot has changed. Working remotely has become the norm for those lucky enough to have jobs that enable that sort of thing, and we’ve all become accustomed to wearing masks and restricting in-person interactions.
However, while all these things are what you would immediately think of when someone says “COVID-19”, one area that is unexpectedly being affected by the pandemic is the price of housing. In some places it’s dipped, while climbing in others. Of particular note is that massive surge in cottage prices. That’s right, your cottage may be worth much more now than you’d expect. Here’s why that’s the case.
The COVID-19 Effect
In many recreational regions, like Muskoka, the cottage industry is in the midst of a massive boom. In fact, a Royal LePage Spring Recreational Property Report found that the aggregate price of a house in Ontario’s recreational markets, more commonly known as cottage housing, has increased by nearly 20% from 2019 to 2020. This growth isn’t looking to stop anytime soon, with rises in the price expected to continue by another 17% in 2021.
The reason this is the case is because of the effects of the pandemic. It drove people out of the metropolitan areas, pushing them outwards. More importantly, this shift outwards encouraged a lot of people to begin buying a second cottage property.
This demand was spurred on by a scarcity of inventory, creating a massive amount of competition and a feedback loop where prices just kept going up. That report mentioned earlier? It verifies these claims.
Some 87% of recreational real estate professionals are saying that more than half of the properties they see on the market are selling above the asking price. That same percentage of respondents also noted an inventory decrease, leading to a classic supply meets demand situation.
Historic low interest rates are also contributing to this boom. The money that’s been slowly saved up during the pandemic, from emergency benefits to less travelling, means that there’s more people able to buy and who are in a position to buy given the fact that they’re now no longer tethered to a desk in the big city. Leading the charge is Ontario and Atlantic Canada, with the most significant increases.
In fact, this trend is unlike anything that the real estate world has ever seen. One long-time realtor, John O’Rourke, emphasized that despite doing real estate for two decades, he’s never seen anything quite like this.
The desire for a lifestyle change in families, such as going out to see nature and enjoy the non-urban view, is directly tied to this, especially in combination with the Internet resources that enable continued work from these scenic locales.
In fact, even more interestingly, there’s a total blurring between residential and cottage properties. More and more people are choosing the cottage as the primary residence, leading to all the aforementioned behaviour.
However, this may be a short-lived decision. In the long term, the winters might be too fierce for these new cottage inductees to bear, and they may find that there’s a certain lack of amenities and city life in these country-side locales.
That’s why it’s important to not overly glamourize the cottage life, as there’s always the chance that you could find yourself stuck with a home that you don’t really feel like using. With the skyrocketing prices, though, this may not be a bad thing at the moment, meaning that you’ll get a quick and tidy return on your investments regardless.
However, let’s dig into the numbers a bit more here. The aggregate price of a house in these recreational regions, again referring to cottage country, is expected to hit $502,730 in 2021 according to Royal LePage. Demand looks like it’s going to keep rapidly outpacing inventory, even as active demand from buyers continues to rise and offers start stacking up at every cottage unit.
In 2020, the aggregate price of one of these homes was already higher than in 2019, at $437,156. That’s right, this year you can expect another near $70,000 increase, which is absurd even in a country whose housing markets have been on fire for quite a while.
In fact, 91% of realtors said that their market has less inventory than typical for their respective regions, so these prices clearly haven’t scared off buyers. If anything, it seems like it’s emboldened them in the sort of frantic rush that marked trends like the GameStop spike, albeit much more stable and less likely to suddenly dip, what with the prevailing trends in the market.
Another fact that may surprise is just how involved the younger generation is in these markets. Royal LePage found that among Canadians aged 25-35, 47% would choose small-town living, while only 45% would choose to live in the city. Combined with the fact that 63% are employed and seeking employment, and that they prioritize the ability to work remotely, as well as the fact that 52% are emphasizing the availability of remote work as a factor in moving farther away, means that they’re poised to break in and start buying homes. In fact, 39% of this cohort said they were considering moving from their current home to a less densely populated area like a cottage in the countryside.
It’s clear that this is a once-in-a-lifetime shift. The pandemic and remote work has created an exodus from urban markets and spurred on a vicious demand for scenic cottage homes in the country. With all that being said, then, it’s easy to understand why this outpacing of demand versus supply would naturally result in a rip-roaring cottage market.
Now that you know exactly why cottage prices are skyrocketing this year, you may be more conscious of the value of your own cottage. Considering how much it might now be worth, cottage insurance is a definite investment that will pay off in the long and short term. So, if you’re interested in getting coverage, reach out to us at Goodison Insurance at 833-932-1368 or contact us here.