Those of us in real estate know that when the housing market plummets, vacation places plummet the most. Second homes are most often discretionary purchases you wait on until you feel flush with cash.
Well, get ready. Realtors say second-home buyers are returning to the store, shopping from Cape Cod to Lake Tahoe. As I told you, nationwide vacation home sales rose 7% in 2011 to 502,000 homes, according to the National Association of Realtors. They made up 11% of total sales in 2011, more than they did in 2010. And NAR’s spokesman Walter Molony, who I hope to see in Denver next week at NAREE, expects continued momentum.
“We’ve heard positive reports from Las Vegas, Telluride, Col., Lake Tahoe, Naples, Fla., and some areas of California,” he told Investor’s Daily. “We’ve been seeing a little bit of unleashing of pent-up demand.”
Well yes, that plus bargain prices.
But while the number of transactions is increasing, vacation home prices are still not generally appreciating. The healthiest segment of the market is, surprise surprise, upper-end properties: the luxury market.
Neal Hanks, an Asheville, N.C. agent says he is seeing significant increases in sales of homes in excess of $500,000 in the Blue Ridge Mountains.
I hear the Florida market is even tightening up. No Girls Gone Wild, but firming. The recent death of my brother-in-law has me poking into the Naples market, where they own two homes. In nearby Sarasota, Manatee and Charlotte counties, inventory is just 4.7 months, the lowest since 2005.
In Southwest Florida, broker associate Jennifer Calenda of Michael Saunders & Co., a luxury regional real estate firm affiliated with Ebby Halliday through Luxury Portfolio, says dollar volume sales are up. Prices are not going up, but people are buying about $100,000 over where they were — so folks looking at a $300,000 condo might spring for $400,000. Are people really feeling more flush, more confident, or just sick of depriving themselves?
Some feel people are getting back on their feet, paying off debt, and I think I read that American’s debt levels were decreasing. David Southworth, founder and CEO of Southworth Development, which specializes in upscale vacation-resort communities, says demand is coming back as people get on their feet.
“The second-home market is always a trickle-up type,” he told Investor’s Business Daily. “As the economy gets better that means small business owners start making money again and executives start getting bigger bonuses. And that’s when our customers come back.”
“During the past year, investors have been swooping into the market to take advantage of bargain home prices,” said NAR Chief Economist Lawrence Yun . “Rising rental income easily beat cash sitting in banks as an added inducement.”
The median vacation-home price was $121,300, down 19.1 percent from $150,000 in 2010.
The typical vacation-home buyer was 50 years old, had a median household income of $88,600 and purchased a property that was a median distance of 305 miles from the primary residence; 35 percent of vacation homes were within 100 miles and 37 percent were more than 500 miles. Buyers plan to own their recreational property for a median of 10 years.
Eighty-two percent of vacation-home buyers said the primary reason for buying was to use the property themselves for vacations, or as a family retreat. Thirty percent plan to use the property as a primary residence in the future, while only 22 percent plan to rent to others.
Forty-two percent of vacation homes purchased last year were in the South, 30 percent in the West, 15 percent in the Northeast and 12 percent in the Midwest; Only 1 percent were located outside of the U.S.
They’re not all back. Southworth recently bought some communities on the cheap after the real estate bubble burst: Creighton Farms in Virginia horse country and most recently Willowbend in Cape Cod. Willowbend is doing the best, because of 8 million in metro Boston who can drive there. Most second home owners prefer to drive to their vacation homes, on average about 4 hours, but most often one or two.
Next week, I’ll hear more about Longcove at Cedar Creek Lake east of Dallas: 45 minutes east of Dallas.
The segment doing the best is the high end of the vacation market, this according to Brent Herrington, senior vice president of luxury developer DMB Associates.
“Inventory is much scarcer in the most desirable locations,” he said. “Prices are firming … we’re getting back to a world of multiple offers.”
Those amazing deals in the tops spots of the Hamptons, Martha’s Vineyard, Aspen and Vail peaked in hit in 2010-11. If you didn’t do it then, or are not quite in that league, look for the secondary markets — beachfront but not the name-drop locations.
After a few decades of recession, Palm Springs is becoming a hot second home market, beating out Santa Fe, say some realtors. And the developers are there to give buyers what they want: sun and out here, golf.
“We find our buyers appreciate all the things that Palm Springs and Indian Wells has to offer – the relaxed, resort atmosphere, no traffic concerns, friendly service, warm winters, incredible views and an abundance of outdoor activities, “ says Bill Bone, CEO and Founder of Sunrise Company, developer of Toscana, a golf community development in Indian Wells.
There is golf of course but also hiking, biking, farmer’s markets, as well as great shopping, dining, entertainment, the arts and medical facilities.
“Members have so much fun here, they call it “Camp Toscana”, says Bone. “We are very pleased with our sales results this year: have been 34 homes sold at Toscana, more than $59,000,000 in total sales.”
Palm Springs is within close proximity to sooo many Cali locales – less than 2 hours from LA, Laguna, San Diego, Palm Springs is brimming with mid century architecture, history and development.
“It appeals to people who really value properties of that era, and the new boutique hotels and restaurants keep things fun and interesting,” say Palm Springs agents Mark Godson and James Dalton Utsey. “The evolution of our downtown strip continues with the Fashion Plaza being rebuilt as a pedestrian friendly shopping and gathering place.”
Like many areas in California, Palm Springs was not spared during the housing bust, but values are beginning to inch up. Don’t have to worry about hurricanes here. Look carefully there are deals to be found.
Many consumers buy thinking they can rent out the home for cash flow and potential income, and they can. Vacation home rental listings are up at the website HomeAway. It had 433,000 listings in 2009, but 700,0000 listings now, says its vice president, Jon Gray.
Buyers are stirring, multiple offers are being reported, but there are no indications of appreciation. In some areas, prices are still falling. Do not be afraid to make an offer below asking: U.S. vacation home asking prices dropped 1.7% year over year in the 12 months ending in April, as overall listing prices fell 0.2%.
I do not advise buying a vacation home for pure appreciation. Just look for family enjoyment and maybe a place to rent out.
Still, some areas are seeing a tweak upwards when the distressed properties are all sold out. And demographics may be favorable for long term growth in vacation homes, with the average buyer age 50. There are 42 million people 50 to 59, right behind them are 43.5 million 40 to 49. Then there are 40.2 million people 30 to 39. These people grew up with vacation homes as common as swingsets and may follow their parents’ footsteps in buying.