Real estate prices fluctuate, of course, all around the province but the perceived value of OTG properties seems to fluctuate the most. Most people new-to-the-dream do not understand that and, to be fair, the reasons for such disparities are generally vague and somewhat complicated all at the same time. It is hard for anyone to make sense of OTG real estate prices.
I am gonna take a run at it…….
……well, a second run at it. The first effort to get a handle on it was expanded on in my second book, “Choosing” (albeit not in great detail) and in a passing kind of way now and then in a few blogs.
I was recently prompted to think more about OTG real estate prices for several reasons: one; a British student doing research found my name and asked about it. Two; a few more readers have expressed interest in moving OTG and three; I have a sense that the usual OTG market around me is also changing even more so lately……so here goes.
- That mainstream urban and suburban markets continue to rise or at least remain high transfers to all real estate everywhere in a generally increasing price kind of way.
- That so many people over the next ten years will be leaving the workforce (Baby Boomers retiring) and many will jettison their high-value urban home for retirement capital is also a factor. But they still need a place to live. When you make a ‘retirement/lifestyle change’, many tend to leave the city for the country.
- Construction costs are over-the-top everywhere and have more than tripled – so people look for cheaper land and that also means ‘heading out’. Mind you, construction costs OTG were and still are even DOUBLE that!
- The meme that the world is going to hell in a handbasket is an increasingly common one. There is a general sense of insecurity and fear of maybe even civil disruption that also adds to the desire to “Get out!” There are a lot of forces that suggest all real estate rural and OTG will increase in demand.
A. On the other hand, current inflationary forces seem to hit rural and OTG properties a smidge harder. Distance means fuel and my $1600 fuel-tank-fill (gensets, chainsaw, boats) is now $2500. That’s a significant deterrent.
B. We also employ more product delivery than we used to (because of Amazon, age, time, convenience, etc) and so a loaf of bread has a 15% percent surcharge as does everything else.
C. The OTG burden of NOT having bank-financed mortgages commonly available is also a deterrent as more cash is required for a purchase. Financial services do not want the risk of an OTG property – the market is too small and often too volatile – they do not want to foreclose on a distant property. Plus most OTG properties are next to impossible to insure (no roads, no fire protection, etc). Those forces and many more act as a limit on rural real estate prices.
Put more simply, there are now new forces even stronger than before driving people out and away from living rural or OTG. Living poor now costs a lot of money. Societies around the world have experienced a strong urbanization influence since the Industrial Revolution and that trend has not stopped. And the more people become ‘civilized’ the less capable they are of living away from systems of convenience. A large family in the 1930’s lived simply, independently but not very well on the prairies or on farms. They did not get fat. They did not drive cars with AC or heated seats. Today, few people have the skills, the will, the family size or the attitude to live that way. Rural has lost a lot of appeal for a lot of people.
But so now is urban life seen as becoming more unpleasant. The retirees are fed up with the cost and the stress. Immigrants can’t afford it. Crime, violence, restrictions and rules have replaced the attraction of the gene pool, theatres and Starbucks. A lot of city people now want out. And there are now fewer people to actually want in because the Boomers did not make a lot of babies! Populations are shrinking.
So how does all that affect real estate prices OTG? I cannot make an accurate and related correlation of those influences and end up with even a rough determination. Being smart, informed and analytical is not my thing…I just see the influences and I shared them with the student researcher.
And I know that there are many, many more factors to consider. Honestly, I could list many more pulls and pushes and quadruple the length of this blog.
But here’s one that is counter-intuitive – there is a lot of land rural and OTG available but there is not a lot of exceptional and desirable land for sale….at least not that anyone can find without being in the area. For instance: if you are OTG and intend to utilize solar, you need to have a south-facing lot. You also need to be sure of your ground water. You need to consider the extraordinary cost of access. That list just goes on and on. And the answers to the list are not found unless you are physically on the ground.
Few realtors want to work hard at their job and they are very disinclined to spend a lot of time and money trying for a commission on a lower priced, very distant piece of land. The interested buyer is hard pressed to find a realtor interested in OTG. That synergy is just not available.
Here’s another one: the potential buyer is also somewhat spoiled or limited in their own willingness. They do not want to, or maybe can’t afford to, go looking for a needle in a haystack. Looking is a major task. It’s expensive and very time-consuming. They expect service and there simply isn’t very much of it for rural or OTG property.
When you think about it, it is a HUGE challenge to find a rural or OTG piece of paradise that a retiree can handle and it is also a rare retiree who has the skills, energy and the knowledge to even make the effort.
That may sound a bit egotistical on my part and I apologize if it does…but I was an exception. We bought the land we are on when I was 26. It was all the rage to go ‘back to the land’ in the 70’s. So, we went. But we didn’t stay. We remained urban for the next 30 years and then we went to the island. And we lucked out. Without knowing anything, we had found the right place. Relying on luck is a not a path I recommend.
Anyway…just a rumination, a reflection, a bunch of thoughts prompted by a British student asking a question….
OTG or not….
Real estate sales and purchases in Canada are going to be very interesting over the next 6 to 12 months.
Canadians are some of the highest debtors in the world …and much of it is based on our Real Estate.
$1 million for a house? $2 million?
Interest rates were 1.5% last year. Now? 5.5% to 7.5 %( depending on YOUR credit).
Mortgage payment that were $2000/month are now $4500/month.
AND your property has depreciated in value.
You are a higher risk therefore you pay a higher rate.
Good luck with that.
Where are rates going?
The US Fed is probably going to raise rates tomorrow and Canada’s Bank Governor stated a month ago that “We (the Bank of Canada) do not see rate increases for the remainder of 2023.”
Good luck with that.
Where the US rate goes….Canada must follow or our dollar swirls into the toilet.
The Canuck buck was $0.80 US in Feb of 2022 …
Now? $0.72 US
We have to follow US interest rates or our dollar goes in the toilet.
Canada imports most manufactured goods so our lower dollar means…higher prices for Oranges, Autos and Vacations.
Can you say recession?
Canadian bankruptcies are rising. Credit card debt, Mortgages, lines of credit are all in the stratosphere.
Every economic indicator is flashing red in Canada.
We avoided the US 2008 real estate meltdown by the skin of our teeth….
I think we are long overdue for a crash and it wont take much more to push a lot of Canadians over into credit penury.
How do you feel about OTG homeless arriving sometime in 2024???
I cannot disagree with any of what you said (too logical) save for a couple of stupid, weak points…1. we have been calling for a real estate crash for most of my lifetime and the most I have ever actually witnessed was a minor correction. Most of the ‘hard times’ were weathered with a short frozen status quo market and paying too much for a mortgage. 2. If the dollar falls, the prices generally increase (kind of a globalization effect on real estate). 3. Canada is still considered a desirable country internationally and BC is considered the best of the lot. Worse, the rest of the ‘world’ is not getting more attractive. More people are coming here. 4. Inventory is at an all-time low. 5. Old people go to the cottage. And I am now seeing that. 6. Interest rates do not control inflation if the cause of the inflation is not attitudinal. If inflation is rooted in a shortage or a system failure, then it gets halted when the broken part gets fixed. I am not so sure the broken part IS fixed but the Fed and the BoC are seeing that their interest rate hikes are not as effective this time around.
Am I bullish on RE? Not at all. I am old. I do not care. It is just that some readers (who do not comment) are looking and finding out what I wrote about above is all too real and they are finding step one of OTG somewhat daunting. They are having a hard time looking and finding and wrapping their head around finding a property not presented by a realtor and NOT getting insurance or high ratio mortgages. For them this is a brave new world BEFORE they even get here.
Having the cash to “buy and build” is daunting….but I’d say if a person is in their 40’s-50’s and has the cash and is thinking about it….
What the hell.
Especially in our “electronic cottage” work from home world.
A gal I know is a “work from home wife” that proof-reads up and coming authors’ manuscripts…..she’s making a shitload of money.
Lots of e-work out there to make the OTG shift a little less financially painful.
As for Canuck Real estate.
Lets see what transpires in the next 6-12 months.
You and Sal should “OTG” rent your place out to people who are thinking about it.
Perhaps a 2 day “crash course” on how to maintain the Batteries, water, funicular, etc and then leave for 2 , 4, 6 weeks .
Nothing like folks being “OTG” for real to find out if they want to do it “forever”.
And you make some money or trade places with them.
It’s a thought that has crossed my mind but there are too many ‘concerns’ doing that….not the least of which is that I want to BE HERE at least 9 or 10 months of the year. And the two or three months I could ‘swap out’ are the absolute hardest for a newbie. Winter OTG ain’t for sissies. I might NOT have the home when I get back! And I cannot insure it.
Nothing worse than a neighbor emailing you your house is burnt to the ground.
Perhaps the Witness protection Program needs an OTG hideout in Jan, Feb, March?
I can not judge on the situation in your area (I do however follow Ed Hanja’s site and I see no significant drop in prices nor a high volume of properties coming online) . There were a few nice plots for sale up north from where you live.
But for sure intrest rates will go up at least 2 or 3 times more this year (so expect an increase of +1% to +1.5%). So loans will become even more expensive, so young people will extend the time of their loans from 20 to 25 or even 30 years (happening as we speak).
There has been a halt in the explosion of the property prices (because of high inflation and higher intrest rates)
People that retire do NOT move to rural area’s over here (as the properties are expensive and lack services (doctor/shop/restaurant). But a lot of old people move to brand new appartment blocks that are being built in large numbers in the smaller villages (2 or 3 stories/nice/lots of windows/sometimes some trees in a communal garden) AND close to shops/doctors and restaurants.
There might be no real estate crash as noncon predicts, but there will be a real estate correction in my opinion. These high current prices can not be maintained in this economical situation
That is what I think, too. First the ‘freeze’ and then the dearth of listings, then a price drop of maybe as much as 10%…..then….well some of the forces mentioned will begin to exert pressure on the market and prices will climb again. OTG properties will rise and fall more (as a rule, they do) but this time might be ameliorated by more boomers going to the cottage…we’ll see.
That apartment block in a smaller centre close to shops sounds very European and, if that was available, I would not be so repulsed. And we do have some like that. But most are unpleasant, too small, too regulated, too expensive and are not ‘walk-to-town’. Lots of changes coming…