When the housing market falls, vacation homes fall harder. They're discretionary purchases that can be put off for another day.
That day may be here or near. Sensing a possible bottom, second-home buyers are returning, say real estate agents in vacation spots from Cape Cod to Lake Tahoe.
Nationwide, vacation sales rose 7% in 2011 to 502,000 homes, according to the National Association of Realtors. They made up 11% of total sales. And commentary from the NAR's resort and second-home committee indicates continued momentum this year, says NAR spokesman Walter Molony.
"We've heard positive reports from Las Vegas, Telluride, Col., Lake Tahoe, Naples, Fla., and some areas of California," he said. "We've been seeing a little bit of unleashing of pent-up demand.
Higher-End Homes Sell While the number of transactions is on the rise, home prices are still not generally appreciating. But many second-home buyers are opting for upper-end properties.
"We're seeing significant increases in sales of homes in excess of $500,000," said Neal Hanks, president of Beverly-Hanks Realtors in Asheville, N.C., a second-home market in the Blue Ridge Mountains.
In Southwest Florida, dollar-volume sales are also up from last year, says broker associate Jennifer Calenda of Michael Saunders & Co., a large regional real estate firm.
"It's not that prices are going up," she said. "But we're seeing people buying properties in the $200,000s, $300,000s and $400,000s where they used to be buying in the $200,000s and $100,000s.
What's changed? Industry insiders point to discretionary buyers' growing confidence levels.
"Demand is slowly getting better as people get back on their feet," said David Southworth, founder and CEO of Southworth Development, which specializes in upscale vacation-resort communities.
"The second-home market is always a trickle-up type," he said. "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.
They're not all back. Southworth is betting they will be. He acquired a few resort communities on the cheap after the real estate bubble burst, including Creighton Farms in Virginia horse country and most recently Willowbend in Cape Cod.
Willowbend "is the easiest sell," he said. "There are 8 million people up the road in the Boston metropolitan area. 'Drive-to' improves your odds tremendously.
The high end of the vacation market has the most activity, says 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.
Herrington says "the really amazing deals" in top spots like the Hamptons, Martha's Vineyard, Aspen and Vail hit in 2010-11. But buyers willing to settle for a beach location that's not Martha's Vineyard "can still find some deals.
Vacation-home shoppers are even getting spooked by rising sales activity in hard-hit Southwest Florida.
People on the sidelines watching the shrinking inventory "are saying 'we better hurry up,'" Calenda said.
In Sarasota, Manatee and Charlotte counties, inventory is just 4.7 months, the lowest since 2005.
U.S. vacation home prices are likely "near a bottom," said economist Jed Kolko at property site Trulia.
For those with cash or who can qualify for a low mortgage rate, "this is a good time to buy," he said.
San Francisco Bay Area software sales exec Karen Dam and her husband just closed on a $270,000 vacation condo in Punta Gorda, Fla.
"Inventory is drying up. Mortgage rates are at an all-time low. And there's a wonderful vacation renter pool," she said.
Dam will rent her condo part of the year to help curb carrying costs.
She's not alone. Vacation home rental listings are up at the website HomeAway (AWAY). It had 433,000 in 2009 and has 700,0000 now, says its vice president, Jon Gray.
Home prices are recovering in many markets, but still falling in neighborhoods that are predominately vacation homes, Kolko says.
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%, he notes.
Precarious Prices The median price of a U.S. vacation home peaked at $204,100 in 2005, NAR data show. Last year's median was just $121,000 as distress accounted for 39% of the sales.
But a lot of distress is burning off. In Lake Tahoe on the California-Nevada border, distressed homes made up 30% to 35% of the market till recently, says Deb Howard, broker-owner of Deb Howard & Co.
"Those are almost all gone," she said. "So we're starting to see prices move up ever so slightly.
The short-term economic outlook is still wobbly, but demographics are "extremely favorable" for long-term growth in vacation homes, Molony says, with the average buyer age 50 with a median household income of $88,600.
"You've got 42 million people 50 to 59 but right behind them are 43.5 million 40 to 49," he said. "There are 40.2 million people 30 to 39. So you've got more people moving into the demographic for buying."