U.S. Vacation Home Rebound Lifts Hilton Head to Hawaii
Leslie and Scott Tyree backed out of a contract in 2011 to buy a weekend place in Hilton Head, South Carolina, fearing they’d be anchored to a sinking market for second homes. This year, the West Virginia couple pounced on a listing in the same resort town without visiting the property.
They bought the two-bedroom condominium in an oceanfront golf resort for $429,000 in April. Values this year in the Hilton Head area jumped 11.1 percent from the first five months of last year and sales rose 9.3 percent, according to the South Carolina Association of Realtors. Prices are still down by about a third from 2007, near the real estate market’s peak.
“We knew several other people were looking at it and it wouldn’t last long,” said Leslie Tyree, 44, a lawyer who first saw the home two weeks before the closing. “We realized if we are going to do this at some point we might as well do it now.”
The surging buyer confidence underpinning the year-old rebound in U.S. property prices -- driven by mortgage rates near record lows -- is spilling into seasonal communities from Lake Tahoe in California to the Berkshires in western Massachusetts.
Vacation-home demand relies on discretionary spending and typically lags behind the broader housing market by about one or two years, indicating secondary properties are on the cusp of a recovery, according to Jeff Meyers, a housing-research consultant with Beverly Hills, California-based real estate firm Kennedy-Wilson Holdings Inc. (KW)
“We’re starting to see a lot of resort markets really strengthen,” Meyers said. “Prices going up in the core markets has a big influence on what people do with their vacation homes and their ability to purchase them.”
U.S. home prices rose 12.1 percent in April, the biggest jump since February 2006 and the 14th consecutive year-over-year increase, according to CoreLogic Inc. That’s helping more Americans feel optimistic about their futures, with the Conference Board’s consumer-confidence index climbing to a five-year high last month.
Asking prices in vacation areas have advanced more slowly. On a per-square-foot basis, May median prices in primary markets jumped 7 percent from a year earlier, compared with a 1 percent increase in areas where at least a quarter of properties were seasonally occupied, according to Trulia Inc. (TRLA)
List prices were up 1.6 percent in the Hamptons on New York’s Long Island, 1.4 percent in Dewey Beach in Delaware, and 8.9 percent in the Big Bear Lake and Lake Arrowhead areas near Los Angeles, the housing-data company said.
“A vacation home is not most people’s first purchase as we emerge from a recession,” said Jed Kolko, chief economist of San Francisco-based Trulia. “But if the recovery continues we could see the price increases accelerate.”
Second-home sales climbed 11 percent last year to 553,000, according to a survey by the National Association of Realtors. That compares with the peak of 1.07 million in 2006. There will be a “meaningful upward movement” in vacation-home transactions this year and into 2013, Lawrence Yun, chief economist for the Realtors group, said June 7 at the National Association of Real Estate Editors conference in Atlanta.
Sales of getaway homes may increase to 650,000 by 2015 and then plateau for several years at about 600,000, according to Chris Fair, president of Vancouver-based Resonance Consultancy Ltd. The firm produces biannual reports of spending on travel and leisure by affluent Americans, defined as families with incomes above $150,000.
Beach and mountain retreats near growing cities or those with long histories are likely to see the fastest rebound, Fair said, such as Lake Tahoe, south Florida, Hawaii and Martha’s Vineyard, off the Massachusetts coast.
“It’s the ‘A’ destinations that are going to recover faster than emerging destinations,” Fair said. “There were many projects that were launched in areas that were not the traditional vacation destinations in hard-to-get-to places, and those are the ones that are going to take the longest and may not ever recover to the peak prices.”
Places such as Central Oregon and the Florida Panhandle where there was a lot of overbuilding and limited populations within driving distance are likely to struggle to revive holiday-home sales and prices, he said.
Nationally, second-home sales will be limited because the U.S. population aged 45 to 54, the prime buying market, will decline by about 8 percent from 2010 to 2020, he said.
“We certainly don’t see a return to highs that we saw in 2005 or 2006, when it was over 1 million,” Fair said. “We’re unlikely to see that level of sales for the next 10 to 20 years, largely just driven by the demographics.”
Changes in mortgage rules may also curb demand. The Senate Finance Committee and the House Committee on Ways and Means are considering altering the tax code, including possible limits on mortgage interest deductions for non-primary residences.
In some vacation areas, prices have already begun to follow or even exceed surges in primary markets. With Los Angeles-area home prices up 30 percent in the 12 months through May, the California desert getaways where Liberace, Frank Sinatra and Bob Hope owned weekend estates are following with a jump in values and a revival of construction, said Michael Hilgenberg, an owner of broker Keller Williams International franchises in resort towns including Palm Springs, Rancho Mirage, Big Bear Lake and Lake Arrowhead.
Prices rose 24 percent in Palm Springs and 25 percent in Rancho Mirage in the 12 months through May, according to DataQuick, a San Diego-based research firm.
Attractive prices and historically low mortgage rates spurred Alon Antebi, an orthopedic surgeon who lives in the Los Angeles suburb of Santa Clarita, to buy two vacation homes this year. In April, he paid $775,000 for a 3,400-square-foot (316-square-meter) mountain log cabin in Big Bear. In May, he bought a 4,800-square-foot dockside retreat in the coastal city of Oxnard for $2 million.
Antebi, 42, negotiated a 10-year mortgage at 3 percent from Wells Fargo & Co. for the Big Bear house, on which he made a 50 percent down payment. He got a 3.25 percent rate on a 30-year loan from Bank of America Corp. for the Oxnard house.
Antebi, a father of two children ages 8 and 10, is also considering buying a third getaway home within driving distance.
“I wanted a place in the mountains and the beach,” he said in a telephone interview. “I did it because I want to enjoy life, but it just happened to be the right time, where interest rates are really good.”
Lake Tahoe, about 190 miles (306 kilometers) northeast of San Francisco, was among the first resort areas to bounce back from the recession as the Bay Area’s technology industry fueled fortunes among young families.
At Martis Camp, a ski and golf resort northwest of Lake Tahoe, 73 properties sold this year through the first week of June, compared with 117 in all of last year, said Brian Hull, director of sales at the golf and ski resort. Typical buyers are technology or finance executives in their mid-40s who pay $900,000 per lot and spend $2.4 million to build, he said.
“We sold OK through the whole thing,” Mark Kehke, president of Martis Camp’s developer, DMB Pacific Ventures, said in a telephone interview. “Things were definitely better in ’11 and ’12 and we’re doing even better this year.”
In Hawaii, vacation-home demand has recovered as investors from the U.S. mainland and Asia return after a five-year slump, according to Kevin Miyama, president of the Honolulu Board of Realtors. Home prices in the state soared 17 percent in April from a year earlier, according to CoreLogic.
“What’s really kind of picking up is the luxury market,” Miyama said.
Luxury property sales surged at the end of 2012 in Martha’s Vineyard, a summer retreat for President Obama and actors Larry David and Ted Danson, and the Hamptons, where radio talk show host Howard Stern and comedian Jerry Seinfeld have homes. The rush, prompted by an expected jump in capital-gains taxes at the start of 2013, may have pulled forward transactions that would have happened this year.
In the first quarter, the median sales price in the Hamptons fell 5.1 percent to $740,000, reflecting a drop in higher-priced sales, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. In the year through April, Martha’s Vineyard prices rose 8 percent and sales fell 24 percent, reflecting a drop in inventory, according to Warren Group, a real estate tracker.
“The fourth quarter was one of the best in several years in terms of local activity, which ultimately cleaned up a lot of the inventory,” said John O’Connell, broker and owner of Vineyard Realty Group in Edgartown, Massachusetts. “Options are limited.”
Prices are picking up in the resort towns of the Berkshires in Massachusetts, where inventories are shrinking, said Chapin Fish, broker at wm. Brockman Real Estate in Great Barrington. Sales in Berkshire County fell 9 percent for the first four months of the year and prices climbed 13 percent, according to Warren Group.
There were enough properties on the market in the southern part of the county in April to last 21 months, down from 29 months a year earlier and 42 months two years earlier, according to the Berkshire County Board of Realtors.
“More started moving for us but we still have a lot to go,” Fish said. “The real premium homes above $1 million are slow. For the lower-priced homes, it has been crazy busy.”
The Tyrees jumped into the Hilton Head market because they wanted to own a piece of oceanfront property before bargains dry up. When their family isn’t using the condo, Scott Tyree plans to offer weekends at the house as a bonus for the best employees at his law and real estate firms, Leslie Tyree said.
Demand for properties on the island, known for its golf courses and white-sand beaches, surged during the housing boom as Americans borrowed to buy second homes. After the crash, foreclosures spiked as homeowners who stayed current on primary properties allowed vacation homes to go delinquent, Hilton Head real estate attorney Tom Brooks said.
Foreclosures in the first quarter dropped 39 percent to 542 compared with the same period in 2010, according to RealtyTrac, an Irvine, California-based data provider. The average number of days on market for a Hilton Head area listing fell 9.7 percent this year to 123 days compared with the first five months of last year, according to the South Carolina Association of Realtors.
The Tyrees’ agent, Lea Allen, has been selling in the market for more than two-and-a-half decades and said it’s the busiest she’s been in years. Her annual income plunged from about $100,000 in the worst year of the housing boom to about $30,000 in the leanest years of the crash, spurring her to start teaching yoga for additional income.
She earned $60,000 in May alone.
“It’s exciting -- it feels like you have your job back,” Allen said. “I don’t have to teach yoga any more. I get to go and enjoy yoga.”