The vacation home market has been on vacation.
Second-home buyers looking for that spot in the sun or at least on the side of a mountain with good ski terrain decided, en masse, to stay at home since the housing bubble burst starting about the middle of the last decade.
I would like to announce that all the bad news has melted away, but I can’t, despite some reports extolling a huge increase in vacation home sales. Here’s my concern: The vacation home market is simply a weaker reflection of the general single-family market, and that the increase in sales is due to the clearing out of short sales and foreclosures.
Under normal market conditions, vacation home markets look brighter than the general market because these are smaller areas with severe geographic limitations: only so much beach frontage or ski terrain surrounded by national forests. However, in a recession, the vacation home becomes what it really always was: a discretionary purchase that doesn’t have to be made. People need primary shelters; they don’t need a second house in Naples, Fla., or Vail, Colo.
"The vacation market is going to follow the overall market with more volatility because properties that would appeal to vacation home buyers are not only being affected by what is going on in the market overall, but the process of buying a vacation home is purely discretionary," said Paul Bishop, the National Association of Realtors’ vice president of research. "If there is a lack of confidence in the economy by consumers, it is easier to wait on a vacation home purchase than on a primary residence purchase."
While, nationally, sales of vacation homes are on the upswing, there hasn’t been much lift to pricing, which is a reflection of the large amount of busted mortgages that have to be cleared out.
Vacation home sales increased in 2011 to 502,000 units, up 7 percent from the year before, reports NAR.
"We went from over a peak of 1 million vacation home sales around 2005 and 2006, to less than 500,000 in 2010," Bishop said. "We picked up in 2011. We should do better in 2012, with the number of sales up again in single-digit percentage."
I’m guessing much of that increase is due to the once-in-a-lifetime low prices in many of these valued vacation spots — the aftereffects of a busted housing market.
"The median price of vacation homes peaked in 2005 at just over $200,000," Bishop said. "In 2011, the latest data we have show the median price had fallen to $121,300. That’s a substantial decline of 40 percent."
Of course, these are national numbers and the housing market in local vacation spots would vary substantially, although the tenor of the local areas is surprisingly consistent with the national numbers.
I checked in with Realtors at two vastly different but popular vacation areas: Hilton Head, S.C., and Jackson Hole, Wyo.
"We are seeing inventory moving now, but prices are not going up," said Tammy Woodard, a principal with Century 21 Advantage Properties on Hilton Head Island. "We are still having foreclosures and short sales, which are keeping prices down. It’s a great time to buy."
Hilton Head’s market peaked around 2006 and early 2007, said Woodard, and then corresponding to the general real estate collapse, Hilton Head’s once booming housing market deflated with the worst year coming in 2010.
"Prices fell substantially but unevenly depending on the particular Hilton Head location," Woodard said, "with some lot values dropping by 50 percent."
Woodard’s most recent deal was a short sale on a Hilton Head condo. The unit had originally been bought for $200,000, but Woodard’s client was able to acquire it for $105,000. Her most recent nonforeclosure deal was in December. Woodard’s client paid $725,000 for a home that had been bought the prior year for $800,000.
"This sale wasn’t about economics, but a personal situation with the homeowners," she said.
With 2012 being an election year, Woodard doesn’t expect the Hilton Head market to come back in a big way until 2013.
Over in Jackson Hole, a well-known and high-end ski town, that market, too, collapsed very unevenly. Many properties under $500,000 lost 50 percent of value, but the market for anything at $1 million and over was more stable. Those properties held onto value "reasonably well," said William Van Gelder, an agent with Jackson Hole Sotheby’s International Realty.
The worst year was 2009 when there were almost no transactions, Van Gelder said. "Then things picked up slightly in 2010, improved again in 2011, and this year is on pace to do better than the prior year in terms of dollar volume and number of transactions."
Jackson Hole didn’t suffer a surfeit of foreclosures as did Hilton Head. Van Gelder guesses the worst year was 2010, when there were just under 100 foreclosures. Last year, there were 31.
"Even at the bottom of the downturn, foreclosures were never more than 20 percent of the market," he said.
Ironically, one of Van Gelder’s most recent deals was a luxury condo foreclosure. The unit was originally marketed at $1.65 million, but Van Gelder’s buyer got it for less than half that price.
On the other hand, another recent deal by Van Gelder was for a single-family home that was listed for $699,000. It sold almost immediately at $692,000.
"Prices are still rolled back, but the story in 2012 is lack of inventory," Van Gelder said. "The average stay on the market is less than seven days from the time of listing."
Looking at the national picture, Bishop is optimistic the vacation home market could snap back fairly quickly for a number of apparent reasons.
"The economy is picking up and we are past the worst of the recession; this will add to consumer confidence," he said. "Secondly, there have been a lot of vacation home buyers sitting on the sidelines over the last few years simply because they weren’t certain they wanted to make the discretionary purchase. Thirdly, it looks like a good time to buy. Prices are down substantially from where they were so opportunistic buyers will sweep up the beachfront houses or condos in a ski area."