The difficulty at the moment is that there is a perception that gas prices are high, and the market itself is volatile.
What is that going to mean for real estate? Generally, it’s not good news.
What effect will it have upon prices? The most vulnerable segment of the market is recreational properties within reasonable commuting distance of major urban areas. Basically, that means downtown Toronto. The time limit for travel seems to be about 3 hours. Beyond that, most people are prepared to reconsider the issue of ownership. Sure, they'll visit friends on a long weekend, but they won't buy themselves.
The recreational market is vulnerable since it is a luxury, and in bad times, that's the first thing to go.
Let's assume that gas prices are still within reach of the average consumer. At the moment, that will take us up to about $1.28/litre. However, you might recall that the prices reached $1.35/litre in June 2008. Beyond that, consumers will balk, and defer driving to distant locations. Work comes first, and there's not a lot of money leftover.
The next issue is availability. If there are intermittent shortages, that could be an issue. And, it seems that every year there are refineries that are inaccessible during hurricane season. This information is always newsworthy, and even if actual shortages do not materialize in the GTA, the possibility seems to have a continuing negative effect.
However, we didn't talk about traffic congestion. If we simply have the same number of cars heading out of the City at about the same time, we are going to add to the congestion. The reason is that on a Friday afternoon, many people leave at about 3 o'clock in the afternoon. That really won't get any earlier. They still have to get their work done. It will simply mean that fewer people will be able to "get away early", basically adding to the already overloaded streets and highways.
Then, the PROBLEM: the weekend commute that wasn't fun! Five hours to get to the cottage battling traffic with everyone going 85 km/hr, and 5 hours back on Sunday. The construction and the small rear-end collision that tied traffic up for hours! But the saving grace on Sunday was that you left first thing on Sunday morning to avoid the rush.
So, now the question: is it worthwhile to own a cottage or should you just visit some friends?
The more people who say "No" to that question, the worse it becomes for the recreational property market which depends so much upon:
· Cheap gas
· 3 hour commutes
· moderate traffic
If that changes, so will the market! And, that will be good for some, and not so good for others.
This summer, southern Ontario enjoyed good weather. This is a boon to the cottage market. Nevertheless, there are really only 10 weekends available each year from the May long weekend to the September long weekend. When you consider the July and August long weekends, that still only allows 24 days that a family might reasonably enjoy their cottage retreat.
In order to justify the new elevated cottage prices, the use must be extended, and the type of accommodation must be upgraded. All of that appears to have already taken place. Fifty year old cottages are being demolished making way for year-round homes.
There are however some fundamental changes that are occurring which will in part combat the increasing gas prices.
The boomers are starting to retire, and one place where they like to spend time is at their cottages. Also, the internet is available. They can work, play, and tele-commute from the cottage. That means generally, they are no longer stuck with the 24 day justification for the expense.
So, going forward the southern Ontario recreation market is going to be less dependent upon gas prices and more dependent upon the internet.
Brian Madigan LL.B., Broker is a Manager at RE/MAX West Realty Inc., Brokerage 416-745-2300.