With little variation, the various regions in the Muskoka and Region recreational and waterfront marketplace have responded similarly to the economic impacts that have altered the entire real estate landscape in 2022. Inflation, and the Bank of Canada’s reaction to it, are the principal reasons for this incredible and rapid change. In a word, the impact on the market has been negative.
Over the course of 2022, particularly after March, when the Bank of Canada began increasing its benchmark rate from 0.25 to 3.25 percent, the recreational and waterfront marketplace can be characterized by declining sales, while properties spend longer on the market before being sold. The chart below vividly sets out what has happened across the entire region year-to-date. It should be emphasized that the data in the chart is not an even reflection of the marketplace. There were exceptional gains in sales and sale prices during the first three months of the year. Since then the declines have been quite pronounced.
Three aspects of the data need to be highlighted: new listings, sales to list price, and days on market. The number of new listings coming to market has declined as the year has moved through the third quarter. Clearly, sellers of recreational properties, primarily because of their inherently discretionary nature, are not putting their properties on the market during this negative period. The sales-to-list ratio at 100.7 percent reflects the prices achieved during the first quarter of 2022, when demand outstripped supply and multiple offer competitions were common. In September, 87 waterfront properties were reported sold with an average sale price of $1,436,754, but at a 95.9 percent sales-to-list price ratio. This reflects list price negotiations. Prices however continue to hold steady. Lastly, the 14 days on market shown in the chart are also a reflection of the market before rising rates. In September, it took all recreational and waterfront properties 27 days to sell. This is reminiscent of the length of time it took properties to sell before the Covid-19 pandemic.
The Bracebridge, Gravenhurst, Haliburton Highlands, Huntsville, and Lake of Bays waterfront marketplaces have individually been impacted in a manner similar to the overall marketplace. Except for the Gravenhurst waterfront market, sales have declined by 42 to 53 percent. The Gravenhurst waterfront marketplace has shown a little more resilience. On a year-to-date basis sales have only declined by 23 percent compared to 2021.
Generally, average sale prices have remained strong in these marketplaces, averaging a year-over-year increase of between 12 and 20 percent compared to 2021. Waterfront prices in the Lake of Bays and Gravenhurst regions have not been as resilient, increasing slightly over 1 percent compared to last year.
The Muskoka Lakes region remains the priciest, with the average sale price of all waterfront properties sold coming in at $2,460,992 on a year-to-date basis, an amazing 29 percent higher than for the same period in 2021. The average price achieved on Muskoka’s three Big Lakes, Lakes Rousseau, Joseph, and Muskoka is substantially higher. In other respects, the Muskoka Lakes market has responded similarly to the economic shock of rising interest rates and inflation as the entire region.
The sales activity on Muskoka’s three Big Lakes is eye-popping. Overall the number of sales declined by a little over 27 percent, from 113 to 82 reported sales. Interestingly over the same period, the number of sales in the $5 Million plus range remained unchanged. This could support the theory that at the very high end of the market price point, buyers are not interest rate sensitive, but that appears to be the only price point where that is the case. In 2022, the average sale price for all properties sold on Lake Rosseau, Joseph, and Muskoka plateaued after consistently rising since 2018. In 2018, the average sale price for all waterfront properties sold came in at approximately $2.3 Million. During 2022 it has leveled off at approximately $3.75 Million. Even though the total number of sales has declined, consistent with the overall marketplace, price stability on Muskoka’s Big Lakes has remained strong.
Chestnut Park’s Performance
Chestnut Park’s market penetration and share has become dramatically evident during the downturn in the recreational and waterfront market. Year-to-date Chestnut Park’s sales representatives have been responsible for more than $345 Million in property sales. In the Muskoka region, Chestnut Park sales representatives have achieved 80 percent more sales in dollar volume than the next closest brokerage office in Port Carling.
The last quarter of any year, excluding the pandemic years of 2020 and 2021, is always slow for waterfront and recreational property sales. This year will be no exception. In fact, compared to the last two years it will be exceedingly slow. Although the ultra high end of the market may not be interest rate sensitive, the rest of the market most definitely is. The Bank of Canada is expected to implement two further benchmark rate hikes in its crusade against inflation. Interest rates (5 year fixed) are currently in the range of 5.5 percent. In all likelihood by year-end they will be in the 6 percent range. As has already happened, these rising interest rates, coupled with the turmoil in the equity markets, will dampen buyers’ enthusiasm to make discretionary purchases. We can anticipate a continuation of the prevailing market conditions until the second quarter of next year when, hopefully, the Bank of Canada will be confident that inflation is under control.