If that beachfront condo is looking better and better to you, you’re not alone.
Last year, sales of second homes, from beachside escapes to backwoods retreats, jumped 57 percent from the year before, according to the National Association of Realtors. Twenty-one percent of all homes sold were second homes, up from 9 percent at the height of the recession.
What’s driving the boom? Increasing consumer confidence and buying power are part of it, but economists say buyers these days are looking for more than just weekend fun. They’re buying second homes as investments: renting them out, with long-term plans to make them their primary home.
Close to Home
Real estate listings site Trulia.com found that the most-searched vacation home locations in 2014 clustered around major metropolitan areas. For New Yorkers, Ocean City and North Wildwood in New Jersey’s Cape May County topped the list, ahead of Florida’s Kissimmee, Marco Island and Panama City Beach.
On the West Coast, Big Bear Lake and Lake Arrowhead in Riverside County ranked No. 6 and 7 on the list, respectively. The resorts near Truckee and Lake Tahoe are popular for Bay Area buyers. According to the NAR report, the sweet spot for vacation homes is a median of 200 miles from the primary home — within easy driving distance.
Beach or Mountains?
The old adage about real estate holds as true for vacation homes as it does for primary homes: location, location, location. The NAR survey found that 40 percent of vacation homes purchased in 2014 were by the beach, 19 percent in the country and 17 percent in the mountains, said Jessica Lautz, director of survey research. Most of the beach homes were in the South, where the glut of foreclosures, particularly in Florida, kept prices attractive.
Arizona, typically among the top locations for second homes, had none of the top 20 most-searched ZIP codes or most popular counties in the Trulia vacation home analysis. Boomers who are delaying retirement are moving to areas with a lower cost of living, higher housing affordability and good job growth, according to a NAR report. The top cities: Phoenix and Tucson, Arizona; Boise, Idaho; Greenville, South Carolina; Raleigh, North Carolina; Albuquerque, New Mexico; and Denver.
Are There Deals to Be Had?
Deals are still available, given that 45 percent of vacation homes purchased in 2014 were either a foreclosure or a short sale. And many were less pricey condos and townhouses. Those factors helped decrease the median price of vacation homes 11.1 percent, to $150,000, compared to $168,700 in 2013. Median prices last year ranged from $179,000 in Gatlinburg, Tennessee, to $1.8 million in Nantucket, Massachusetts Perhaps as a result, 85 percent of vacation homebuyers surveyed by NAR said they believe now is a good time to buy real estate.
A significant portion of those vacation homebuyers surveyed by NAR used cash, many from their much appreciated 2014 stock portfolios. If they used a mortgage, 48 percent financed less than 70 percent of their purchase price.
Still, home prices and interest rates are expected to continue to rise, and that could mean many of today’s prime locations are less of a bargain.
The Next Hot Markets
Updated 2015 figures show that the top vacation-home counties are shifting to the Florida Gulf Coast, where Fort Myers and Cape Coral in Lee County and Marco Island in Collier County are newly popular, according to Ralph McLaughlin, housing economist for Trulia.com.
Economists expect that sales of second homes will remain robust, particularly if the stock market remains strong and interest rates relatively low. And the incentive to buy sooner rather than later is strongest in many Western markets.
In Napa, California, the average buyer waiting an additional year to purchase will pay an additional $40,182, according to Move.com. In Santa Cruz, California, the cost for waiting jumps to $65,780; in Honolulu, Hawaii, it’s $46,464.
“Current market conditions give buyers the opportunity to build substantial wealth in the long term ... in advance of the projected increase in mortgage rates and continuing price appreciation,” says Jonathan Smoke, chief economist for Realtor.com.