Back in the brightest days of the housing boom, it seemed as if vacation properties in such places as Rehoboth and Dewey Beach, Del., were literally flying off the market.”In 2004, prices were really appreciating rapidly,” says Chris Riss, real estate agent of Jack Lingo Realtor in Rehoboth, an area so popular with Washington-area residents that it has been dubbed the nation’s summer capital.
“But right now,” Mr. Riss says, “the psychology of the market change is that there is no appreciation in the short term.”
How accurate is market psychology? The days of multiple offers and metastasizing prices are gone, but a second home may still be a good investment in the long term, along with being a great place to stay on weekends.
According to a survey released in March by the National Association of Realtors (NAR), about one-third of all home buyers last year were purchasing second homes. While that number is down from the peak of the housing boom, it represents a return to historic norms that some experts say show market readjustment rather than stagnation or decline.
“It’s a typical cycle,” Mr. Riss says. “There’s been overreaction on all ends. In the long term, values and prices will still rise.” Also, a great beachfront property is a great beachfront property, whether it’s 2005 or 2008.
“There’s always interest in the beach,” says Walter Molony, a spokesman with NAR.
What has changed is the absence of those looking to make a quick buck - speculators - who helped drive the market boom.
“Speculative behavior is just not that normal,” Mr. Molony says. “Most people are buying second homes to live in them themselves.”
Vacation sales are back to traditional levels, and investment transactions are back to about where they were before the boom. The most popular second-home locations? Still the mountains or the beach, most real estate agents say.
Whatever your preferences, there’s always movement in the high-end housing market, which continues to enjoy record-level sales and prices.
For most people, the second-homes market is a bit different from the one driven by primary home buyers. For one thing, second-home buyers have more discretionary income. Also, of course, the vacation-home market itself is a discretionary one, so buyers who don’t need to purchase a property may delay large purchases during economic downturns.
Then there are those who purchase a second home now for full-time use later.
“The retirement market is hesitant just like everyone else,” Mr. Riss says, “but retirees are generally less concerned with what the house is going to be worth in five years.”
Sometimes, it pays to wait.
The median price of a vacation home was $195,000 in 2007, down 2.5 percent from $200,000 in 2006. The typical investment property cost $150,000 last year, unchanged from 2006.
Though the homes may not be flying off the market in Rehoboth like they once were, interest in the area remains strong.
“It’s a great place to go to,” Mr. Riss says. “The baby boomers are coming into the retirement market now, and Delaware has no state real estate tax, and county taxes are low.”
Whether you turn a profit, break even or go under with your second home has as much to do with when you choose to sell as with when you choose to buy.
According to the NAR, vacation-home buyers plan to keep their property for a median of 10 years; 38 percent plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of four years, with 29 percent planning to keep it for six years or more.
However, 10 percent of investment buyers plan to sell in one year or less.
In Rehoboth, many homes purchased as second homes end up being primary homes later. Their buyers generally pay a fraction of what homeowners in nearby areas of New Jersey and Maryland would pay for a similar property.
“The trend recently has been that people who purchased a vacation home have the aim of that eventually becoming their primary residence,” Mr. Molony says. “The tax laws have changed, and you can build and protect a nest egg.”
Rehoboth and other communities along the Eastern Seaboard are also experiencing a bit of the “half back” phenomenon; retirees from the mid-Atlantic who once flooded Florida have found that state a little less inviting once they started living there all the time.
“People found it too hot, too humid, too far from children who couldn’t make it down to see them,” Mr. Molony says.
However, the market back home has gone beyond the price range for most fixed-income retirees. The solution? Move to places such as North Carolina or Delaware - a lot more affordable than New York or New Jersey and a little closer to the children.
Since the peak years of the building boom, many localities such as Rehoboth have instituted new rules designed to keep speculators and certain other types of homeowners at bay. Town homes or condominiums may be restricted to certain areas. Thus, once inventory becomes more fixed, demand will grow.
“Interest in the area remains strong,” Mr. Riss says. “In fact, there’s a pent-up demand because buyers have been holding back, waiting for prices to drop.”
Eventually, the combination of fewer building starts and lower prices is going to result in increased demand and decreased inventory, he says, just what home sellers are seeking.
It may not be a good time to sit around twiddling your thumbs waiting for prices to get much lower. Prices might go up.
The market is a little different in Deep Creek Lake, tucked away in the mountains of Western Maryland. Deep Creek Lake offers year-round activities, at least for those hardy souls willing to stand some fairly cold temperatures come January.
“People may spend the summer here and then come up every other weekend to ski,” says Mike Kennedy, a sales agent with Railey Realty, who notes that Deep Creek Lake recently was named one of the top second-home spots by Forbes magazine.
“Right now, it’s still a good market to buy into,” Mr. Kennedy says. “After Sept. 11 we had a huge upsurge in demand. People didn’t want to fly.” Through the first quarter of 2008, 34 homes in the Deep Creek Lake area sold, with an average sold price of $637,929 - this compares to 37 homes sold in the first quarter of 2007 with an average sold price of $537,565.
“Prices aren’t dropping,” Mr. Kennedy says. “They’re going up. Even in the ’80s, property values never went down.”
So is now a good time to buy?
According to the NAR survey, eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 59 percent of primary residence buyers. Forty-four percent of vacation-home buyers and 57 percent of investment buyers said they were likely to purchase another property within two years.
Still, before you are ready to ride out to find your next investment, consider this: In today’s tougher economic times, will your rental income cover the costs of owning and maintaining this home? The answer depends on a number of factors, including location, amenities and even the price of gasoline. So before you consider investing in a second home, it is important to take a little time to do the research that will let you do the math.
* Get a feel for the local rental market. How close is your investment property to where vacationers want to be? How is the view? What about parking?
* Check fees on comparable rentals nearby. Vacation-rental Web sites such as Homeaway.com, Ownerdirect.com and Vamoose.com will enable you to see the going rates in the area. Many of these Web sites also will provide you with sample contracts and advertising space you can “rent” to troll for tenants.
* Go the distance. How far away is your weekend getaway? With today’s high gasoline prices, renters may be a bit less willing to travel far from their starting point.
* at is like during the off-seasonW? If you are planning to move into your vacation home permanently some time in the future, you may want to see how life is when the season ends.
* Know why you buy. How do you plan to use your home, now and in the future? Adjust your expectations for your experience accordingly.
* Figure out your finances. In other words, don’t tap into your children’s college fund so you can buy a second home.
In the long run, when it comes to second homes, the numbers may be crunching in your favor. Demographic demand is strong. Currently, 38.7 million people in the United States are ages 50 to 59, 45.3 million people are between 40 and 49, and another 40.9 million are 30 to 39. These younger segments will drive the second-home market over the next decade.
The U.S. Census Bureau predicts that second home purchases for boomers will reach 6.4 million units by 2010, up from 5.5 million units purchased in the 1990s.
“These are good fundamentals,” Mr. Molony says. “The numbers are strong given investment age. There are more buyers out there for the future.”
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