The boom in second home purchases | barrons
What happens when investors with bloated stock portfolios adapt to virtual work arrangements? A frenzy of second home buying.
The onset of the pandemic sparked the biggest surge in vacation home sales many areas have ever seen and two years on, even sleepier getaways are attracting buyers with cash on hand and ready to up the ante. prices by 30% or more.
Hordes of office-detached buyers have driven up prices and crushed stocks across all market segments, but the most dramatic year-over-year changes are at the upper end of the market .
Second home sales in early 2021 were 90% higher than they were in mid-2020, and 77% higher in December despite a typical holiday slowdown, according to real estate brokerage Redfin.
In 2021, the average price of the 10% wealthiest single-family homes in North America was $1.7 million, up 25% from 2020, according to the Institute for Luxury Home Marketing in Dallas.
But there are notable differences between the current and historical surges, analysts and realtors say.
While well-known hotspots such as Aspen, Colo.; Miami; Flagstaff, Arizona; and Hilton Head, SC, have been highly sought after, notably missing from the list of locations with the highest second home sales activity last year – a sign that the pandemic is causing many buyers to turn to the markets markets emerging for inventory and possibly softer prices.
Topping the list with the highest second home sales volume is Franklin County, Florida, called the state’s Forgotten Coast due to its quieter towns and minimal development. The second is Sevier County, Tennessee, home to the Great Smoky Mountains National Park, and Trigg County, Kentucky, known as Lake Country, according to Pacaso, a San Francisco-based real estate company. which focuses on second homes.
“Second homes have become part-time primary residences, and they’re in places where people can still get to their offices if needed,” says Rick Calero, head of banking and loans at BNY Mellon Wealth Management. .
The trend is transforming markets that were traditionally quiet retreats. The Cascade Lakes and Mountains in Chelan County, Washington, which is about a 2.5-hour drive from Seattle, attracted a wave of buyers, and the average home price rose 56% from $550,000 in 2020 to $870,000 in 2021, according to Aubrey Reynolds, agent at Mike West Leavenworth Realty in Leavenworth, Wash.
The boom prompted the county to require permits to list second homes as longer-term rentals. “The county wants to watch things so it doesn’t turn into a party town,” Reynolds said.
Almost everywhere there are slim choices for shoppers. Home inventory is so low in popular markets that sales have slowed somewhat, but that doesn’t reflect continued demand.
“Historically, we had about 350 to 400 properties for sale at any given time, but at the end of 2021 we had 53,” says Brian Sullivan, principal broker at Fisher Real Estate in Nantucket, Mass.
Bargain hunters have almost nowhere to turn, and anyone who wants a second home in a coveted location needs to plan for a quick turnaround, which often means having cash on hand.
Winning bids often come from buyers who have borrowed against investment assets, Calero says. “They can borrow at a fairly low rate and they stay invested in the market,” he says. “They make a cash purchase, then refinance with a mortgage and pay off the loan.”
While the overall real estate market could slow towards the end of the year if interest rates start to rise as expected, the second home market is more dependent on the performance of the stock market, says Cristian deRitis, deputy chief economist at New York-based Moody’s Analytics, which expects the average 30-year mortgage rate to rise from 2.8% at the start of January to 3.86% by the end of the year.
Remember, waiting can be a losing game, says Brian Farrell, broker at Stone House Properties in Great Barrington, Mass. “At the start of this wave, many buyers said the prices were ridiculous and that they would wait,” he says. “Here we are almost two years later and prices have skyrocketed.”
This article originally appeared in the March 2022 issue of penta magazine.