Subprime mortgage: Cottage mania can’t go on: ‘The average Canadian is priced in’

Welcome to Mortgage Rundown, a sneak peek into Canada’s mortgage landscape from a mortgage strategist Robert McCallister.

Sip a drink as you enjoy the amazing sunset from your hut basin: what a life. It’s a life that most people outside of the top third of earners won’t realize.

“The average family doesn’t buy a cottage,” says Chuck Morney, president of the Lakelands Association of Realtors. “The average Canadian is priced in.”

The average waterfront property in rural Ontario – the Lakelands region – is now selling for $1.2 million, up 125 percent from $535,000 since April 2020.

Mortgage amounts on those properties have ballooned by more than half a million dollars, based on a 20 percent down payment.

A skyrocketing rise in values ​​and rising interest rates, in turn, drove those mortgage payments up — a staggering 159 percent in the same time frame — from $1,958 to $5,081 a month.

And we’ve only been talking for the past 24 months, my friends.

A little moderation on the horizon

Morney says offers have slowed down “a bit,” but multiple offers on asking price are still common in hot rural areas, thanks to chronically scarce inventory.

Halliburton County, for example, has dropped 34 properties on offer, according to the latest report from RE/MAX Professionals North, 19 percent less than a year ago. Meanwhile, properties there continued to sell for 111 percent compared to list price in April.

Could these kinds of values ​​be sustainable given market expectations of up to 300 basis points (more than three percentage points) of price hikes and possible stagnation in a few years? I asked Mr. Morney for this answer.

“Based on average prices, I don’t think we’re going to see a significant drop,” he believes. “And if we have a drop in cottage values, the expectation is that it will be minimal.”

This may seem strange to those who think that vacation home areas are less liquid and less flexible than urban markets, which have higher concentrations of primary residences. In fact, country house prices have generally held up better than prime house prices in recent downturns, including 2008 and 2017.

But let’s be honest here. The market has never seen a price hike like this before. Start.

These nosebleed rates will now be tested by up to 300 basis points to tighten interest rates and possibly even stagnate.

On the other hand, what are the minimum lakefront Ontario cottage properties:

With a standard shortage of supply

When is the Greater Toronto Area expected to add more than 137,000 residents each year on average, over the next five years?

When one in four urban residents (24 percent) would like to purchase a recreational property within 24 months, according to a National Leger-RE/MAX survey?

Do you have fixed payments on a variable mortgage? Here you will really start to feel the pain of the price hike

How high can prices go? Mortgage Lessons from the Seventies

People want more lifestyle, more space, they are willing to work from home, and despite excessive price growth – country country is still cheaper than homes in some big cities.

However, parabola prices are always reversed. And in this cycle, hordes of people relied on housing stock and investment stock to buy cottages. Thus weak asset prices can put a temporary peak in home values.

If low cottage prices are ugly (without saying it), one thing is guaranteed. People will line up to buy the drop.

Owners of financially stable cottages know this, and most will ask, “Why bother with selling?”

Investing in a cottage is still a thing

With very few picks on Airbnb and VRBO, rents for cottages are skyrocketing. Attractive properties are captured instantly.

“Cottage country is where I come to reduce the stress of life,” says Mr. Morney, noting that the only thing that could limit the demand for cottage rent might be the prices themselves.

In less exclusive areas, weekly rents for in-season cottages now range from $2,500 for “entry level,” to $10,000 a week for “middle level” to more than $20,000 a week for “luxury” properties in Muskoka, says Troy Austin of Haliburton Cottage Rentals. .

But the cottage owners only have three to four months a year to generate that revenue. So can investors still do that at today’s prices?

“You can definitely cover the expenses. We have clients who rent out their homes/huts in excess of $100,000 to $200,000 a year,” confirms Mr. Austin. But huge mortgage payments, insurance, utilities, administration, property taxes, agent fees, and maintenance costs are just some of the expenses that eat into that revenue.

With values ​​in place and a challenging macro outlook for the future, investing in a cottage is arguably more risky than ever, especially if you don’t have enough spare savings. For those considering the jump into the cottage business, make a pro forma income statement on a spreadsheet and leave yourself at least a 10 to 15 percent emergency fund for job openings and unexpected expenses.

And remember, the numbers will look a lot better if prices go down.

Mortgage Deal of the Year – in British Columbia

More than seven out of 10 Canadian real estate shoppers choose a bank mortgage. In many cases, this is a mistake. If you are taking out a mortgage in British Columbia or already have property there and need five years fixed, this can be a costly mistake.

Enter the Community Savings Credit Union. At 3.39 percent, it had the nation’s best five-year flat rate — a full point below a big bank’s typical five-year flat rates. And this is not a mortgage without luxuries. It’s for insured and uninsured purchases and refinancing, and comes with 30 percent prepaid and amortization perks of up to 30 years (if not insured).

The savings rate versus big banks’ five-year offerings is roughly $4,800 per quarter, for every $100,000 borrowed.

Moreover, if you simulate the performance of 3.39 percent over five years, assuming that market price predictions are roughly correct, it outperforms all other terms.

“We’re able to offer this great price because we’ve been so successful in reducing costs and delinquencies and passing on those savings to our members,” says Mike Schilling, CEO of Community Savings. But he added that the current show is due for review on June 6, so get it while it’s hot.

Mortgage rates this week

Most prices remained constant, except for the lowest fixed prices, for one to three years. They have jumped 10-20 basis points in the past seven days, as the market anticipates higher rates in the next few years.

Lowest mortgage rates available nationally

term non-believer Provider Believer Provider
1 year fixed 3.49% Investors Group 2.99% true north
2 years fixed 3.84% RBC 3.29% true north
3 years fixed 4.09% Alterna Bank 3.79% true north
4 years fixed 3.99% Alterna Bank 3.99% true north
5 years fixed 4.14% Alterna Bank 3.99% marathon
10 years fixed 4.94% HSBC 4.44% Nesto
Worker 2.39% HSBC 1.99% HSBC
5 years hybrid 3.37% HSBC 3.51% Scotia i Home
hello 3.05% HSBC Unavailable Unavailable

The rates in the accompanying table as of Wednesday are from providers that advertise rates online and lend in at least nine counties. Insured rates apply to those who buy with less than 20 percent down payment, or those who transfer a previously insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1 million and may include premiums at the applicable lender rate. For providers whose rates vary by county, their highest rate is shown.

Robert McCallister is an interest rate analyst and mortgage strategist and editor at You can follow him on Twitter at Tweet embed.

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