Second home sales slide in pandemic-era vacation hot spots
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[October 30, 2023] By
Amina Niasse
NEW YORK (Reuters) - U.S. vacation home sales have fallen by nearly
three-quarters from their frenzied pace three years ago as an inventory
shortage spawns a wrenching correction in the second-homes market.
In markets like Hilton Head Island, South Carolina, or Lake Havasu City,
Arizona, sales have all but dried up, data from mortgage services firm
Optimal Blue showed, even though demand remains as hot as ever.
The reduction comes after a fervor of real estate investment in vacation
locales during the pandemic. And as secondary home activity dwindles,
some smaller housing-related businesses in leisure hot spots say they
are feeling the pinch as well.
The current share of secondary homes within the existing housing market
has fallen to 16% as of August, from a peak of 22% in January 2022, data
from the National Association of Realtors (NAR) showed. That share is
still somewhat above the 14% average from late 2015 through the first
half of 2020.
The market for second homes is dominated by wealthier buyers less
sensitive to the jump in interest rates and the persistence of high home
prices, but inventory remains a barrier.
“Homes are just not available,” said Chuck Tuttle, vice president of
sales at William Raveis Real Estate based on Cape Cod, a popular coastal
vacation spot in Massachusetts.
Hilton Head Island and Lake Havasu City experienced the greatest fall in
volume at 83% and 87%, respectively, compared with respective gains of
45% and 79% from early 2019 to the start of this year.
"When quality secondary homes come on the market and they’re prepared
and presented correctly, they go quite quickly regardless of the price
point,” Tuttle said.
Remote work policies and quarantine regulations that kept Americans in
their homes during the height of the COVID pandemic stoked a frenzy of
vacation-home buying as more people looked to invest in space.
Optimal Blue data shows vacation home purchases peaked nationally during
the third quarter of 2020 when 30-year mortgage rates were on their way
to record lows under 3% as the Federal Reserve moved to prop up the
economy in the face of the pandemic.
HIT TO RELATED BUSINESS
With the Fed having shifted gears to fight inflation, rates on home
loans have risen to two-decade highs, reaching 7.90% in the latest week,
according to Mortgage Bankers Association data.
[to top of second column] |
Sitting on a beach at water?s edge, a man takes a photo as the sun
rises over Hilton Head Island, South Carolina, U.S., March 16, 2023.
REUTERS/Kevin Lamarque/File Photo
Higher borrowing costs and lower vacation home sales have also hurt
some businesses that count on that activity to feed their own
operations, said Tuttle, citing difficulties for realtors and home
remodeling contractors.
“Services for existing rentals has grown, but services for larger
ticket remodeling work on new vacation rentals has stopped," said
Tim Allen, owner of Kopa Home Services, based in Flagstaff, Arizona.
"I can't recall any large project or make-ready that we've done on a
new vacation rental owner this year.”
With most buyers purchasing homes built in the 1980s, renovations on
existing houses overall are rising, according to the NAR. But the
decline in vacation home purchases cuts into the strong customer
base for remodelers because second-home buyers often have higher
average incomes than cash-strapped first-time home buyers, said
Jessica Lautz, NAR's deputy chief economist.
Those who bought secondary properties during the pandemic as
vacation rentals are now seeing declining occupancy rates and a loss
of revenue as many markets became oversaturated.
Allen has had to decrease unit prices in his separate vacation
rental business, Local Vacation Team, to keep occupancy figures
above market. Since March of 2022, national short-term rental
occupancy is down 8%. For Flagstaff, that figure is 14%, according
to data from AirDNA, a short-term rental data provider.
“Our market is all about supply," Allen said.
"With the acceleration of the creation of vacation rentals during
the pandemic, now if visitors are at 1,000, there are 3,000 rentals
available,” he said. “My largest price decrease was a 20% fall from
the time they listed it to the time it finally went.”
(Reporting by Amina Niasse; Editing by Daniel Burns and Bill
Berkrot)
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