Prices for cottages and other recreational properties are expected to remain fairly tepid this year as high borrowing costs and lower buyer demand continue to slow Canada’s real estate markets.

Prices for single-detached homes in major recreational ski regions are expected to climb to an average of $1.1 million, or 2.9%, over the coming 12 months, according to a recent report from Royal LePage. And that’s assuming interest rates stay level or decline somewhat.

That would follow an estimated 4.5% decline in recreational property prices in 2023. While that drop doesn’t erase gains of nearly 12% year-over-year in 2022, it suggests Canada’s supercharged recreational market is coming off a pandemic-fuelled high and back to a more seasonal cycle.

“Recreational housing prices in Canada’s popular ski regions are expected to remain stable in the year ahead,” said Pauline Aunger, a Royal LePage broker, in the agency’s Winter Recreational Property Report. “While demand has weakened and supply has increased compared to the pandemic-fueled boom, market activity is trending back to normal historical levels.”

Affordability challenges to blame

Royal LePage blames high interest rates and Canada’s rising unaffordability for the relative softness of recreational property price hikes.

The result, for sellers, is frustrating to say the least. Joe Bladek, a Muskoka-area mortgage broker, says clients are having a very hard time selling any properties at all.

To make matters worse, Bladek says, lenders are shying away from doing deals on recreational properties because of their marketability issues. “A lot of sellers are having a hard time finding not just the right clients,” he explains, “but clients that can actually find the proper financing.” That includes recreational properties even at the edges of Muskoka’s cottage country.

Financing challenges for recreational properties

Admittedly, recreational properties aren’t always the most popular for lenders. During bad times, lenders usually find homeowners will keep up payments on their primary residence at the expense of wherever they spend their summer weekends. Still, Bladek says, several clients were turned down for financing to build a full-time residential home.

“A lot of these lenders that will typically lend in these areas are saying, ‘we’ve discontinued the construction financing program for that area,’” he says, “or ‘we are taking a temporary hiatus on it because of the market conditions.’”

And now in the midst of the winter months, annual sales on winter recreational properties continue to be slow. Royal LePage says they aren’t dropping off a cliff, mainly because there aren’t many properties out there, and sellers tend to hold out for a desirable deal. The ongoing affordability issues in Canada’s real estate markets doesn’t help, either.

“In addition to a return to normal work and social routines,” Aunger said in the Royal LePage report, “today’s elevated interest rate environment has exacerbated this cooldown as consumers are more concerned about mortgage expenses and the overall economy, including those shopping in high-end recreational markets.”

What could change the situation for Canada’s recreational property prices, and the rest of Canada’s real estate market, is a rapid lowering of interest rates.

Bank of Canada Governor Tiff Macklem has suggested interest rates might already be tight enough to bring down inflation. But the Bank of Canada hasn’t been as optimistic as U.S. Federal Reserve Chair Jerome Powell, who suggested the Fed could deliver up to three rate cuts in 2024.

For anyone currently interested in recreational real estate, Bladek says certain types still sell more easily than others, even in spite of current market conditions.

Bladek’s advice? “If you’re going to find one on a waterfront, whether it be a river or a lake, it’s a lot easier to get financing,” he says, “and because of that, a lot easier to sell.”