Now’s the Time to Shop for that Perfect
Vacation or Retirement Home
by Chris Becicka
How long have we been hearing about the real estate meltdown? Prime, sub-prime, median home price dropping, mortgage upside-downs, the ‘R’ word, the specter of bankruptcy, unsold family homes—the negative news has seemed endless.
Good news has been sparse. But new home sales have bounced “modestly” according to the National Association of Home Builders’ chief economist, David Seiders. In late May, Real Estate News and Advice said there are signs that the worst is over for the three-year real estate correction cycle. The National Association of Business Economists believes that housing and consumer credit conditions will stabilize and begin improving as the year moves on. Ellen Hughes- Cromwick, chief economist at Ford Motor Co. and president of the association, was quoted, “The entire U.S. economy will slowly return to health this year.”
This silver lining is showing itself especially to patient home buyers who have been able to sniff out bargains from anxious sellers. That is becoming readily apparent to buyers in search of a second or a vacation home. If a buyer’s income is steady and is in a recession-proof industry, or if the buyer has been saving steadily towards a goal of a vacation home, or is wealthy enough to afford, and get, two mortgages, now may just be the perfect time to start researching the purchase of a vacation home.
Second home purchases, including investment properties, vacation houses, and retirement homes, accounted for about 36 percent of all home sales last year and second homes now comprise 38 percent of the nation’s entire existing housing stock, according to the National Association of Realtors.
The group doing the buying is, no surprise, baby boomers, whose average income is about $86,000 according to the NAR, and only about 5 percent of them currently own a second home. Of that 5 percent, most are vacation-home owners rather than investors, the average age is 59, and the median income is $120,000. These second homes are not million-dollar estates or Colorado condos. Instead, they are cottages, cabins and chalets where the owners expect to eventually retire. The second home market is expected to increase by 100,000 to 150,000 each year during the next decade according to John Tuccillo, former chief economist for the NAR and author of The Eight New Rules of Real Estate and New Business Models for the New Economy.
Why would now be a great time to buy? That’s relatively simple, says Judith Katz, realtor with Reece and Nichols. “It’s timing. Mortgage rates are reasonable, there is an abundance of homes, and diminishing sales prices have conspired to create some great deals for the astute shopper.” She recently sold a home at Lake Lotawana to a Leawood couple who think it’s weekend fun for now and it may be their home when they retire. “And if not, they’re confident they’ve made a good investment,” said Katz.
Home prices have decreased across the board, the past few years. A Wall Street Journal on-line news alert pointed out the median home price was $202,300 in April, down more than $17,000 from a year ago. But, says author Jeff Bater, “High inventories have exerted downward pressure on prices. The decline has kept would-be buyers from signing off on property as they wait for still-lower price tags.”
However, the examples in their short newsreel were much more dramatic and certainly scream, “Buy now.” In the vacation- and retirement-home Mecca of SiestaKey near Sarasota, Fla., an estate formerly pegged at $3 million is down to $2 million; a two-bedroom condo is now selling for $799,000 compared to $1.5 million a year ago; a two-bedroom, two-bath home at $615,000 in September 2005 is now selling for $437,900. This last was from a speculator with several properties who found himself unable to cover his debts in the downturn.
The question for many is how low can they go? That answer depends on region. For instance, there’s an area in Vermont called Quechee Lakes where the averagehome sale value increased 7 percent from 2006 to 2007. By contrast, data provided by NAR shows that median sales price for single-family homes in the U.S. decreased 2 percent from the third quarter of 2006 to 2007. Home values in this area of Vermont have doubled since 2000 with the average price increasing from $209,388 in 2000 to $463,710 in 2007.
There is certainly more than price to consider when buying a second home whether for investment, vacations, or retirement. Mortgage money is still available, though it more difficult to come by. Mortgage lenders examine second-home applications more carefully than they do applications for first mortgages. If owners decide to rent out the second home, lenders will consider the property an investment rather than a vacation home and the borrower will need to factor in an additional point and a half in addition to the minimum 20 percent down payment. There are definite differences in financing a vacation versus a rental property. And then, there are the tax benefits for the second home – mortgage interest is deductible up to $1 million on first and second homes.
Becky Ansley, Realtor with
Prudential Kansas City Realty, sums it
up: “Consult your CPA first, not last.
Think about all of the expenses, time
and care involved in owning two
homes. Compare all your costs to
expected appreciation. Then go for it if
it feels right. And this is a time when
many good deals are out there.”