Muskoka Real Estate | 2024 Market Outlook for Cottages & Homes

Within this mosaic, distinct patterns and dichotomies reveal themselves, growing more pronounced with each layer of analysis. However, I encourage you to view these insights with a healthy dose of skepticism, recognizing that the real estate market is inherently complex and unpredictable.

Let's start with what, in my opinion, are the macro influences pushing and pulling on the Muskoka market.

1. The Foreign Buyers Ban - In a nutshell, the Act establishes a prohibition on individuals classified as 'non-Canadians' from acquiring residential properties, whether directly or indirectly, commencing on January 1, 2023, was recently extended to 2027. This prohibition encompasses not only major urban hubs like Vancouver, Calgary, Edmonton, Toronto, and Ottawa but also extends its reach to numerous smaller locales, including Squamish, Chilliwack, North Bay, Collingwood, Kawartha Lakes, and Wasaga Beach. It's worth noting that many individuals in these smaller communities may own recreational properties, making this restriction relevant to a wide range of potential buyers.

The ban does not include, among others, the Muskoka or Parry Sound Regions. At first blush one would assume that this would have a positive effect on real estate demand in the areas not covered by the ban. But this rising tide is not lifting all the ships equally. In my experience  buyers from other countries are looking for high-end investment properties, generally over $3,000,000. This creates the first of our dichotomies and it's a strong one. Foreign investment, looking for luxury properties, is now forced to concentrate away from major centers. Muskoka is a prime candidate for all the obvious reasons. Beautiful, close to the G.T.A and lots of impressive properties north of $3,000,000. The counter to this is the Non Resident Speculation Tax (NRST). The NRST applies on the purchase or acquisition of an interest in residential property located anywhere in Ontario by individuals who are foreign nationals and is 25% of the purchase price. The NRST applies in addition to the general Land Transfer Tax.

1. Interest Rates - Much has been written about the Bank of Canada's interest rate changes and its effects on real estate. Basically, it's really bad. This is not news. What is news, and what has been overlooked, is that its effect on the luxury real estate market is negligible. The couple buying the $5,000,000 cottage on Lake Joe is  not going hat-in-hand to the bank looking for financing. They're probably just writing the cheque. It's the average family trying to buy an average cottage that are having trouble. As banks tighten up they can be less than keen to lend for a second property, particularly when the carrying cost of the primary residence has gone through the roof. If you look below at the chart of completed transactions, it's clearly a tale of two markets. It will take more than a modest decrease in interest rates to reinvigorate demand for waterfront in Muskoka at lower price-points.
2. The Covid Factor - As we all know, Covid put unprecedented pressure on real estate prices throughout Ontario and that was pressure was keenly felt in Muskoka. The frenzy began to subside in late 2022 and by spring 2023 it was gone and the pricing gyrations were in full swing. Some sellers and agents were tuned into the new reality of the market and some clung, and are still clinging, to the now fizzled frenzy. What I've found interesting is the large volume of new listings that were Covid purchases. Depending on the area and timelines, up to 1/3 of new Muskoka and Parry Sound waterfront listings have been purchased since Covid. I would also also speculate a large portion were bought to " fix & flip" or "split & flip". There were long waiting lists to get a survey and long backlogs at planning board, both which attest to the number of severances & new builds. With the writing on the wall for a correction, many speculative investors are attempting to exit the market but find themselves underwater.