What kind of nuts are we talking about, Jodi? Macadamia nuts? Brazil nuts? Definitely not peanuts, as you won’t find any vacation homes worth their salt going for that. Sure, the second home market is super hot, but let’s not get too carried away — slow growth is sustainable growth, and that’s what many economists are seeing in the vacation home market.
What I do like about Jodi Helmer’s piece in the Huffington Post is the four essential pieces of advice for vacation home shoppers (although I don’t necessarily agree with the fourth):
1) Location is king
2) Make sure its a viable rental
3) Make sure you see the real bottom line (maintenance and taxes) before signing on it
4) Before you make a bid, sleep on it
The fourth piece of advice is kind of problematic because, just like buying any property, someone else might want it more than you and if you follow Jodi’s rule and always sleep on it, well, you can lose out.
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.
“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.
Rent it, sell it, make it pay the bills for you? You may want to get up early with me tomorrow morning to participate in a way cool phone “webinar” with participation by experts in the vacation home marketplace. This is the second of two such webinars we are offering this summer. You missed the first one but don’t worry, I did too!
Learn what draws people in to rent your home, and learn great unique ways of marketing it that are so out of the box you may not even need coffee to wake up!
Ocean condo kitchen at Costa Baja in La Paz, Mexico
Open doorways from second master bath suite to bedroom
Latino homes love open spaces: Costa Baja, La Paz, Mexico
Dallas Real Estate is changing. Several years ago, my cousin and his wife moved his parents into their home. It was a bit unsettling because I thought my aunt and uncle needed their own space. Turns out my cousins, who live in Florida, were way ahead of me.
With more Hispanics buying homes in Texas and across the U.S., builders and Realtors are noting a sea-change of differences in the kind of homes they buy. And the way they buy: 30% of Hispanic real estate purchasers did not use a realtor. And 40% of home buyers in U.S. are now Hispanic.
Realtor Oscar Gonzales of the Gonzales Group and Scott Caballero of the San Antonio Board of Realtors cited many statistics last week at the National Association of Real Estate Editors “state of the market” conference to illustrate an increasingly Hispanic domestic real estate market, not just in sunny San Antonio but everywhere. Did you know that Hispanics have moved in droves to Alabama, Mississippi and Georgia? Caballero evoked a recent Harvard University housing report claiming 40 percent of all new minority households created within the next 10 years across the U.S. will be Hispanic. Developer H. Drake Leddy, President of the Presidian, which is building San Antonio’s Vidorra and many hospitality properties in Mexico, told me of a fortress-like private community under construction north of San Antonio near The Dominion. It is owned by a group of well-to-do Monterrey families who fled the prosperous city after the tragic shootings there at The American Foundation School last August, another in a string of violence that has terrorized Monterrey and many border towns.
“You have to understand,” Leddy told me, “Think of what would happen if a shooting occurred at St. Marks or Hockaday. These parents are trying to protect their children.”
Does this mean you might have to be bi-lingual to sell your home? Maybe. Home builders and anyone hoping to appeal to this market will definitely make some changes, since Hispanics tend to have larger families and buy a different type of housing. For one thing, they treat their elders with respect, invite them into their home (as my cousins did), and don’t toss elderly parents into nursing homes. The profile of the customer coming through the door is definitely changing.
(Meantime, my son gave me a sign that reads, “be nice to the children: they select the nursing home”.)
Gonzales said new homes will increasingly be tailored to Hispanic wants and needs, which include open floor plans and dual master bedrooms for live-in grandparents. Kitchens are big enough to hold multiple cooks, must have gas ranges to cook tortillas, and nannies have small bedrooms that resemble walk-in closets, some right off the laundry area. Others have small third car garages that serve as the nanny’s room — nothing super fancy for the help. Latin and Hispanic families also like large front porches where friends can gather, quite opposite to the traditional suburban home with a rear-entry garage where you seldom see your neighbors. And the entire home is built for the convenience of two families living within. I noted, for example, that the homes at Costa Baja in La Paz were build with duo-masters, each with small kitchenettes, and exterior doors so the residents of one master could come and go without disturbing the rest of the family. Builders and developers clearly need to accommodate the multi generational family.
When there’s a market, there’s a way. Both speakers said lending practices are under development to enable undocumented workers to obtain financing for home purchases. Sort of puts the mentality of places like Farmer’s Branch, Texas and my once home town of Elgin, Illinois that tried to pass a law not permitting more than one generation to live in a house, in perspective. The Elgin law got thrown out.
As I’ve said previously, the U.S. market is benefiting from the instability of countries around us: capital flight. Foreign buyers from nations with troubled currencies or unstable societies, such as Mexico and Venezuela, are buying U.S. real estate to move away from violence in their home countries or as investments. They highlighted Texas, Los Angeles and Miami as hot markets for these international buyers. San Antonio has all but become a second home market for affluent Mexicans.
I caught up with Vern Yip, star of HGTV’s way popular design shows, when he popped in to visit I.O. Metro up near the Dallas Galleria last week. Yip has a new partnership with the Little Rock, Arkansas-based store that offers a wide variety of stylish, sleek but hip, good-looking and comfortable home furnishings at most affordable prices and a “made in America” stamp/tag. Yips fans were busting down the door, first in the Allen store, then at the Galleria location. Many brought design dilemmas — and he was so gracious! Yip has formed a new alliance with I.O., will be seen in advertising campaigns and is offering “Vern’s Picks” throughout the stores — these all items Yip has selected as design must-haves.
I sat down on a plush I.O. couch and just went right for the real estate jugular — turns out Yip is also real-estate obsessed and even has a second home in Manhattan:
VY: Second homes are really getting popular because real estate is so affordable now and it really gives you an opportunity to free up your design sense a little.
VY: Oh, let your hair down, explore a different style, do something radically different from the primary residence.
CE: Load it with old furniture?
VY: Second homes are not about old furniture! They are an escape, a retreat, a gathering place for friends and family and the last thing you want to do is have it filled with old leftovers.
CE: Everything new then?
VY: Sometime used is good, sometimes it’s not — but we are not talking –
CE: Furnishings you would have take to the Salvation Army?
VY: Yes. A second home is a good opportunity to reflect a design side of yourself not seen in your primary home. Maybe go for clean lines or contemporary –
CE: If your primary home is traditional?
VY: The design must be functional for less upkeep, not loaded with a ton of stuff.
CE: Like a beach house?
VY: Yes, you need to have furniture that works, that is not just great looking. Closed storage is important. Stain resistant fabrics and furnishing s that do double duty. Second home furniture must work harder.
CE: Good point! So do you have a second home?
VY: My primary home is in Atlanta and I have a second home in New York City.
CE: Do you lease it out? (Pulling out checkbook.)
VY: No! It’ about 800 square feet at Columbus Circle with great views of Central Park. I’m there at last once a month and I always feel more relaxed there — you tend to be more relaxed in your second home because you — literally — leave your baggage in your first home!
CE: That’s what I love, too. OK, so how is it designed?
VY: Clean lines, neutral tone on tone, minimalistic and big, bold art. The windows see nothing but Central Park. I have a sofa bed that is a queen sleeper, and my one bedroom. Simple, easy, what else do you need?
CE: Sounds perfect. Everyone needs a second home in NYC. Thanks Vern!
I feel like some House Porn Candy (I’m trying to go on a diet and stick with Candy instead of Porn) and when I saw this home at gorgeous Cinnamon Shore last weekend, I seriously said — I’m selling everything and moving in. Squatters rights, whatever. What is it about being at the beach that just calms, soothes, and makes you feel like nothing in the world at all matters but those gorgeous blue(ish) waves and sea froth? Cinnamon Shore is a gorgeous development about five miles of Port Aranas that captured my heart. If you’ve ever been to or seen Seaside, Florida, you will see that Cinnamon Shore is almost a clone. And there is nothing wrong with cloning something that works. Seaside was a planned beachfront community that is one of the biggest success stories in the U.S.
But this house!
This is a beautiful 4,000 square foot home with five bedrooms, a bunk room, five and a half baths and two master suites — so two couples could share ownership and even be there at the same time. The interiors are spectacular and made me fall in love with a Mustang Island designer interior named Susan Castor whose work puts the real Seaside interiors to shame. There is shiplap siding, tongue and groove all whitewashed or painted white; white oak plank hardwood floors; what they call “morning kitchens” and I call “beverage bars” in both masters — maybe that’s a phrase the Baptists prefer! There is an elevator and two laundry rooms, and scads of outdoor porches to catch the Gulf sea breeze where folks never shut the windows so they can hear the surf. And hear the surf you will from this property because it overlooks the dunes with a view full of the beach from every single room. Really, $2.2 million for a giant, brand spanking new beachfront house?
Who needs Prozac? All you need is a house at the beach!
543,000 vacation homes were sold in 2010, ten less than in 2009.
867,000 investment homes were sold in 2010
940,000 investment homes were sold in 2009
Only 25 percent of vacation home buyers plan to rent them.
Only 20 percent of investment buyers plan to use their second homes themselves.
The median price of a vacation homes hovers between $150,000 and $170,000 and is falling.
The median price of an investment property is usually around $105,000.
Vacation homes accounted for 10% of all real estate sales last year.
Investment homes accounted for 17% of all real estate sales last year.
Baby Boomers closing out their “peak financial years” are shopping for second homes and swooping up the bargains, but the second home market is still tepid. The benefits: a long-term investment and hedge against inflation if they are buying at the bottom, and income potential through rental. If Boomers are looking toward retirement or a scaling back of work, many see a future retirement home in the second home. That is, they want to lock down a place now while prices are low in anticipation of selling the larger family home eventually.
Why is this so different from the way Boomer’s parents operated? Most Boomers bought their home, paid it off, and stayed in it until they moved (or were moved) to a retirement home. My uncle lived in his home until he died at the age of 100. But dynamics that made this scenario attractive have changed. Property taxes, for one, are rising in urban areas, as is crime and traffic. Federal tax laws have changed and may change again, making home ownership more (or less) attractive. As income dips, real estate investment can provide additional tax benefits or shelter. Children are spread across the globe and may not be able to take care of an elderly parent in the family home. Boomers lived in homes that average less than 2,000 square feet. Their children (baby boomers) bought and built bigger homes that eventually become costly or cumbersome to maintain.
Demographically, the typical vacation-home buyer is about 46 years old, has a median household income of $87,500, and purchases a property that is a median distance of 348 miles from their primary residence, according to the National Association of Realtors. (About 34 percent were within 100 miles of their primary residence, and 40 percent were more than 500 miles away.)
Annually, between 10-27 percent of all homes sold in the United States are in the vacation homes, second home or investment home category. And those numbers will increase because vacation homes are a bargain right now. The median price of a vacation or second home was $150,000 in 2010, down a whopping 11.2% from a year earlier, according to the NAR. Nationally, values at primary residences fell 4.5% in 2010. Nearly 40% of vacation home sales were cash sales, and if a buyer did obtain financing, they put a bunch down, 30 to 40% down. Finally, most vacation home buyers wanted the great deals and found them: nearly 17% of the investment homes they bought were foreclosures.
Those percentages were little changed for 2010 as home sales declined across the board. There were 543,000 vacation homes sold, down from 553,000 in 2009; investment purchases fell to 867,000 from 940,000.
One factor depressing sales was the difficulty in getting mortgages due to tight credit markets. Buyers often did an end-around this problem by paying cash. Nearly 40% of vacation home sales were cash deals, while nearly 60% of investment deals were handled that way.
Homeowners who owe more than $1 million on their homes are under intensified scrutiny by the IRS now. Why? Because of so much confusion over deducting the interest on those over $1 million mortgages. And you can do the math — if your mortgage is more than a million, you are likely deducting a boatload of mortgage interest so pay attention because this could mean good deduction news, something we need a whole lot more of right now. I’d say only your CPA knows for sure but that may not really be the case!
Here’s the deal — as is usual, the tax code is so dang complex everyone is confused, even the IRS themselves and those advising us, CPA’s. At issue is how much interest can be deducted, and it is based on what kind of debt the homeowner holds. I will tell you that the Alternative Minimum tax can make this a moot question for many, which is frustrating.
Tax rules distinguish between two kinds of home debt. There is home acquisition debt, which is a loan used to acquire, construct or substantially improve a qualified home, and is secured by the home. This would be your mortgage.
Then there is home equity debt, which is any other kind of loan that is also secured by the home, but used to pay off credit card debt or for general consumer spending.
The controversy centers on how this was all interpreted. Some tax advisers and agents were telling clients it was acceptable to deduct all interest on a single mortgage of up to $1.1 million. Others said no, the limit for mortgages was $1 million, but they could also deduct interest on another $100,000 (up to $100,000) in a home equity loan.
IRS said last spring acquisition loans over $1 million may also qualify as home equity indebtedness. And the taxpayer can deduct interest on the full $1.1 million, even if he has only one loan.
But throw a few re-fi’s into the mix, and the rules can get “complex”. Or second homes. If a taxpayer owns several homes, say a house in upstate New York and a condominium in New York, they may also be subject to paying New York state and city income tax if they are there for more than 180 days/year.
There’s a reason why we call this blog second shelters: tax rules generally allow deductions on a first and second home, but not a third or more. Of course, most folks pop those into limited liability partnerships, especially if they are income-producing, and the entity files a tax return that flows down to the taxpayer.
And if you are thinking ha, it’s those rich SOBs again, let them pay up… think again. Many people buy in areas where home prices are not what they are in Texas, and they have no choice but to take on huge mortgages. I am also finally reading Michael Lewis’ The Big Short, which is amazing and spells out how banks wanted to over-extend loans to consumers, many of them 100% loans on, yes, million dollar properties.