Second-home deals
It's not too late to snare that retirement or weekend haven of your dreams
Don and Kathryn MacVicar knew one thing: They had to have a place in the sun. The couple from Halifax, Nova Scotia, have escaped the harsh Canadian winters the past few years by spending some time in Florida, "each year a little bit longer," Don, 61, says with a laugh. And now he and Kathryn, 60, are looking to spend even more, with Don's recent retirement from his job as a bank executive.
But if there was one thing they weren't crazy about, it was the Florida housing market. Prices in places like Fort Lauderdale or Miami Beach had gone "off the charts," he says. Even less-chic spots like St. Petersburg and Sarasota have been getting prohibitive. So the MacVicars kept looking--and looking--until they discovered Venice, a "quiet and laid-back community" just south of Sarasota. They found a two-bedroom condo that was within their price range, 10 minutes from the beach, and right on the seventh fairway of a golf course. It had all the amenities they wanted but none of the bustle of the state's east coast--and as a "steal" at $134,000, it wouldn't deplete their savings in one fell swoop. Don's advice for those looking for an affordable personal getaway? "Buy quick, because it's still going up," he says. "People are coming down in throngs."
Dreaming about a cozy second home on a beachfront or mountaintop, just like the MacVicars? You're not alone; 63 percent of affluent households have investigated the idea of buying a getaway in the past year alone, according to a recent survey by homebuilder Centex. But perhaps it's time for a reality check. Vacation-home communities have been appreciating even faster than the larger real-estate market. Appreciation has been "double what we've seen in primary markets," says David Hehman, president of the website EscapeHomes.com. The last time the National Association of Realtors looked specifically at vacation-home communities, prices had risen 26 percent over two years from 2001 to 2003. Ouch.
The result: According to real-estate watcher Ingo Winzer, president of Wellesley, Mass.-based consultancy the Local Market Monitor, getting into top resorts has become an unlikely dream for many. While most primary markets in the country might be up 3 or 4 percent in the past year, "many places in California and Florida might be up 10 to 15 percent or more," says Winzer. This frenzy, of course, isn't good news for housing affordability. Winzer crunches local income levels, then compares them with a market's median prices. By his calculations, Fort Lauderdale at $238,500 is now 36 percent overpriced, West Palm Beach at $262,300 is 29 percent too high, and Honolulu at $333,900 is 25 percent overpriced. Atlantic City/Cape May on the Jersey shore, at $299,800, is 56 percent above what it should be.
Up-and-comers. Great news if you already own; not so good if you're looking to buy. But don't give up yet. New crops of second-home communities are sprouting up around the country, as buyers cast their sights away from pricey traditional resorts and seek out up-and-coming communities that won't deplete their savings.
"We're definitely seeing people's interests expand as they look for good deals," says David Lereah, chief economist for the NAR. "There's a whole new set of resort areas around the country." And EscapeHomes.com, which caters to those who lust after vacation properties, has identified 10 of them. Instead of Palm Beach, for instance, buyers are looking to still-affordable places like Venice. Instead of Cape Cod, they might look farther up the coast, to Brunswick, Maine. If western mountain resorts like Aspen are out of your range, look to undiscovered spots like Paonia, Colo., or Livingston, Mont.
Seattle journalist Doug McLennan did just that, seeking out a less-traveled getaway. McLennan, 46, and his cardiologist wife, Sarah Speck, 54, had been toying with the idea of a second home in the region. But in many areas, like popular Bainbridge Island or the San Juans, the so-called Microsoft millionaires have pushed the price of waterfront property into the stratosphere.
So the couple looked for places that were a little underdeveloped but offered the same water vistas they'd been hoping for. They found one on Vashon Island, which is less accessible to commuters and even has a limited water supply, so it can never be overdeveloped. The home they found was vintage 1953 and looked it--but at $500,000, it was a dream location and a fraction of what other waterfront property in the area would cost. "We're really enjoying it, and it's also appreciating in value very quickly," McLennan says. "It may even be a retirement spot for us."
Indeed, the specter of retirement is one reason for the nation's vacation-home juggernaut. But there are many other factors at work, too: Boomers are in their prime earning years and are in a financial position to afford a second or third home. Supply is limited in resort areas, thanks to natural boundaries and local zoning restrictions. Mortgage rates are still relatively low historically, despite recent upticks. And people just feel safer with a tangible investment like real estate instead of a stock market that's burned them before.
Look outside the box. What's a homebuyer to do? Broaden your search area, for one, say experts. Instead of setting your sights on, say, Miami's Ocean Drive, seek out a resort's outlying communities--close enough to offer the same amenities of gourmet dining or high-end shopping but removed enough to offer a reasonable price. Like little Talent, Ore., suggests Hehman, near the tourist hot spot of Ashland. "In Talent, you can still get a home for $200,000. In Ashland, it might be $500,000, and it's only three minutes away."
If you're determined to buy in prime communities, then consider renting your potential home out during peak season, which would significantly pare the cost of ownership. Or be prepared to lower your expectations some, such as buying a place not directly on the water. Historically, people would clamor for beachfront, to make sure their place would always be an easy sell, says NAR's Lereah. But no more: Purchase a home 3 miles away from the sand, and it's still within reach of the beach.
You can also forgo the beach altogether and focus on the other hot trend du jour, golf courses. If, on the other hand, you love mountain resorts but can't afford a tony Vail townhouse, check out varied spots like Snowshoe, W.Va., or Bear Valley, Calif. In fact, "local" resorts that are closer to a homeowner's primary residence--a short drive, say, rather than a long plane ride--are coming into vogue, as buyers want to stick closer to their families in a post-9/11 world. Places like Door County, Wis., which is a hot spot for the upper Midwest, are much more affordable than Cape Cod, says Tad Gilster of the NAR's Resort Committee.
A caveat for vacation-home seekers: Though plenty of price information is available online these days, at sites like HomeGain.com, searching for affordable communities sight unseen is a supremely bad strategy. "If buying a vacation home is like a marriage, you've got to go out a few times beforehand," suggests Gilster. Take multiple scouting trips to the area to see if it's a fit for what you're looking for, because some cheaper venues may be that way for a very good reason.
Lereah, who has a book coming out called Are You Missing the Real Estate Boom? says that the smart investment move for bargain-hunters is to follow the boomers. By checking out migration patterns--some of the data compiled by the Census Bureau are available online at realtor.org --you can check out where the American population is heading, often to sun-baked places like Nevada and Arizona. Counties with major inflows will have added support in keeping sales strong in the future, even if current prices are looking fairly frothy. "It's a tidal wave that's going to last another 10 years," predicts Hehman.
Which remains to be seen, especially if interest rate worries prove well founded. But until then, even undiscovered vacation spots are getting a wee bit crowded. Just ask Don MacVicar about his new home in Venice. "The only negative thing? It's getting busier."
TOP TEN EMERGING MARKETS FOR SECOND HOMES
Big Lake, Alaska
Brunswick, Maine
Kingsport, Tenn.
Lakeport, Calif.
Livingston, Mont.
Minden, Nev.
Paonia, Colo.
Talent, Ore.
Vashon Island, Wash.
Venice, Fla.
Source: EscapeHomes.com
This story appears in the December 6, 2004 print edition of U.S. News & World Report.