From Alain Pinel: What About A Weekend-Home?
The funny thing with money is that the best ways to make lots of it are also the best & quickest ways to lose it!
Say you have a problem: you have “too much” of it. Could be worse. What can you do with the excess, your so-called discretionary income? Some of you, thinking that since you know how to make a lot of money, you might as well make even more of the stuff, may choose to gamble on Wall Street or purchase investment properties. Some of you, the prudent type, will prefer building a nice nest egg, slowly but surely, and stay clear of life’s financial hazards.
Some of you, who think that life is too short to waste as much as a day, will treat themselves with a beautiful and useful present: a weekend or a vacation home. Of course, this treat does not preclude them from using the savings or investing options mentioned above.
Now that the residential real estate market is hot again and prices are either rising or, at least, stabilizing, weekend-homes are looking awfully attractive. With this type of investment, you can’t go wrong. It is likely to appreciate over time, but even if it does not, you get to use it and enjoy it as long as you keep it. It is, after all, a second home.
According to a study by NAR (the National Association of Realtors), vacation-home year-over-year sales were up 7% in 2011 (beginning of the recovery) and 10% in 2012. Quite a rebound after falling 58% between 2006 and 2010. The median sales price jumped to $150,000 nationally last year, up 24% from 2011. We are still far from the peak of $204,000 achieved in 2005 but, watch out, we’ll get back there very quickly.
As it is the case for primary residences, location is THE factor to consider when signing a purchase agreement. Even though the return on investment may not be top of mind, you might as well financially benefit from picking the right spot. It is especially important in coveted luxury markets where vacation or weekend-homes represent a huge share of the housing stock. In a good economy, properties next to the ocean, a lake or a mountain command a hefty price. Conversely, when the economy is moribund, those premium pricey homes are hard to sell.
We saw both scenarios in just a few short years in the most famous vacation/weekend heavens in the country, as I was reminded upon reading Realtor.com stats reproduced in the Wall Street Journal and Moody’s Analytics. Take a look.
In The Hamptons, where prices are off nearly 30% from peak days, the economic revival is accelerating the selling process at a rate which already produces a shortage of inventory. The supply of homes is down 10.8% y/y.
Same declining supply-picture in Pebble Beach (-17.5%), Sun Valley (-10.8%), Naples (-15.3%), Park City (-28.9%). Happy days are here (or are about to be here) again. Prices are moving up. That’s good news for some key markets which have gone flat over the last few years. That’s the case for the California wine country (Napa/Sonoma) and Cape Cod, where prices have been slashed as much as 50% and 20+% from the peak, but are now regaining momentum.
The weekend/vacation-home market is expected to start roaring again. In fact, at the high end, the bet is that price appreciation for second homes will surpass that of primary homes. It is not too late to get on the train but it may soon be. With today’s near record low prices, near record low mortgage rates and a growing demand from cash buyers, the window of opportunity is getting thinner by the month. Ready – Set – Go!
By Alain Pinel
General Manager of Intero Prestigio international
Intero Real Estate Services, Inc.