The vacation home market in the United States appears to be divided into two areas – traditional and unstoppable.
In many traditional vacation home regions, the credit crunch and the subprime mortgage collapse that have damaged real estate values across the country are also sabotaging the second-home market. But luxury homes – which are sometimes third or fourth homes – appear to be holding up well.
“Prices are coming down even more on second homes than primary homes, unless you’re in an affluent area like the Hamptons or Nantucket,” said Alan Rosenbaum, president of New York City-based mortgage firm GuardHill Financial Corp.
Current data for second home sales are scarce because they are not separated from other housing transactions in most monthly or quarterly reports. However, weakness in most second home markets had become evident more than a year ago in a 2006 survey of buyers conducted by the National Association of Realtors (NAR).
The median price of a vacation home – one that typically is lived in by the owner – was $200,000, according to the NAR’s 2006 data, down 2 percent from 2005. The typical investment second home in 2006 cost $150,000, down 18.3 percent, according to the survey.
Sales also were off almost 29 percent for investment homes, but up just under 5 percent for vacation homes.
Professionals who deal in the second home market say that except for some enclaves that are popular with foreign buyers (see story on page 82), sales worsened in 2007.
“In some markets, like Florida, the second home market is off as much as 80 percent,” said Richard M. Gollis, president of the Concord Group, a real estate advisory firm. “It’s off about 50 percent in California.”
James Chung, president of the real estate marketing and research firm Reach Advisors, agreed that California and Florida are especially troubled, mainly because of the large proportion of speculative investments in resort areas of the two states.
“Western resorts tended to have a higher percentage of people buying second homes for investment purposes,” said Chung. “In other parts of the country, where people bought for their own usage, prices are doing better.”
NAR divides the second home market between investment properties, which are rented or purchased with the intention to re-sell, and vacation homes, which are used by owners or their family and friends.
David Lereah, the former chief economist for NAR who last year moved to Move Inc., which operates real estate Web sites, said that values of vacation homes appear to have been hurt by problems in the investment real estate market. In many regions, investors with troubled loans have dumped inventory, creating a glut that has led prices to decline.
Some resort areas of Florida that attracted speculative investors have been hard hit, according to Wayne Archer, director of the University of Florida’s Bergstrom Center for Real Estate Studies.
“They are the areas experiencing high degrees of stress,” he said. “People who bought homes for their own use are probably not as affected by all of this.”
High-end luxury homes also have been spared steep declines in prices and sales, according to industry specialists. Individuals who can afford homes that cost well over a million dollars tend not to be dependent on credit markets.
“The luxury market is discretionary and mobile,” said Gollis. “It’s not affected by mortgages. For many buyers it’s not really second homes, but third and fourth homes.”
The overall decline in home prices nationally is dragging down the market for second homes in other ways. That’s because many buyers used the equity in their primary residences to acquire second homes. Falling home values combined with rising interest payments turned many of these loans bad.
The surge in second home sales and prices that occurred earlier in this decade was fueled, in part, by a small number of professions that saw huge windfalls, according to Chung. He cited private equity fund managers who received millions of dollars in payouts.
“The private equity world descended on resort communities like locusts,” said Chung. “Those guys are gone now.”
Second homes have risen slightly as a percentage of total homes sold in the United States since the NAR began surveying buyers five years ago. In 2003, 33 percent of all homes sold were second homes, while in 2006, the share of second homes was up to 36 percent.
In 2006, approximately one-quarter of vacation homes were purchased in the Northeast, 13 percent in the Midwest, 38 percent in the South and 25 percent in the West.
The typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and purchased a property that was an average of 215 miles from their primary residence.
Developers who target vacation home-buyers and other sections of the market, such as foreigners, are surviving in these difficult times, according to Chung. “There are still second home communities being built and bought and sold,” he said.