Thinking about buying a vacation property? What you need to know.
There’s no doubt owning a vacation property is enjoyable from a lifestyle perspective. But from a financial standpoint, buying a cottage, cabin or recreational property may not be the smartest decision – especially now.
Today’s real estate landscape
Getting into the vacation real estate market at this time may be daunting thanks to extraordinary market increases seen in the last few years.
According to Royal LePage1, the national aggregate price is more than 32% above 2020 levels after two years of double-digit price gains in recreational real estate. This is supported by the RE/MAX 2023 Cottage Trends Report2, which shows that the average selling price in Whistler, British Columbia was $1,623,452, compared to $974,000 in Canmore, Alberta and $841,887 in Muskoka, Ontario in January 2023.
These prices represent a large amount of capital to tie up in a long-term investment. Great recent returns if you were already in the recreational real estate market before 2020, but a much larger initial capital investment if you are trying to enter the market today, with no promise of continued growth at recent levels.
In fact, there has been some reduction in prices recently. Nationally, the aggregate price of single-family homes in Canada's recreational regions is expected to decrease by 4.5% in 2023 to $592,005 compared to 2022, according to Royal LePage. Reduced demand due to economic uncertainty and a lack of available housing stock is contributing to this decline. All provincial recreational markets, except Alberta, are projected to see price decreases in 2023, with Quebec forecasting the greatest depreciation at -8.0%.
Interest rates
At the same time, interest rates have increased significantly over the last year, so using a mortgage to purchase the vacation home is even more expensive than in prior years. Odds are, you won’t be able to realize a comparable increase in the vacation rental income based on current demand. And when comparing a long-term real estate investment, there is much less flexibility or opportunity to adjust when market volatility occurs.
Those who became vacation homeowners prior to 2020 have certainly benefited from recent increases, but if you’re thinking about investing in real estate today, the future could be much less promising.
The final analysis
Of course, not every choice needs to be about money, and for many, buying a vacation property is about leaving a lasting legacy for generations to come. Strictly from an investment standpoint however, there may be better options we can suggest.
If buying a recreational property is part of your future plans, talk to us. We’ll help you put the pieces together to determine whether it makes sense for your financial situation.
1 Royal LePage Blog | Canadian real estate news | Real estate activity in Canada’s cottage country returns to seasonal norms after more than two years of pandemic-fueled exuberance
2 Cottage Trends in Canada in 2023 (remax.ca)