Industries

Second homes

A ray of sunshine in a dreary housing market

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by Lisa Antonelli Bacon


A Northern Virginia couple had been toying with the idea of buying a second home at Wintergreen Resort in Virginia’s Blue Ridge Mountains. So when a three-bedroom home — with a stone fireplace, wraparound deck and within walking distance of the resort’s golf course — came on the market for $325,000 this year, they scrambled off the fence. The couple hopes to buy the property for $274,000, the lowest price for a detached home in Wintergreen in the last eight months, according to Wintergreen Real Estate Co.

While sales of primary homes languish, the second-home market in Virginia is still seeing buyers. The couple in the example, who didn’t want their names used since negotiations are ongoing, is typical in today’s market. “Since September, we’ve seen a lot of people who have been waiting on the fence for two or three years,” says Hunter Lynn of Wintergreen Real Estate Co. When home sales were booming several years ago, some people were scared to get in the market, “because it was so crazy,” recalls Lynn. “Now they feel more in control.”

Indeed, some real estate experts say a buyers’ market is a prime time to stake a claim on a vacation home. And Virginia is a good place to do it.

“The fact that home sales are slow right now is actually a good thing, because you can get your vacation home for a lower price,” says Christine Karpinski, a director for HomeAway.com, a vacation home rental Web site, and author of several books on vacation homes. Virginia, she adds, is “one of those blue chip areas” where you really can’t lose, short of building in the Dismal Swamp.

Last year, second-home sales accounted for 36 percent of residential sales transactions, according to the National Association of Realtors (NAR). It’s a trend that’s been gaining steam in recent years as baby boomers head into retirement. Despite the nationwide housing slump — the number of existing homes sold in September was the lowest in the eight years that the NAR has tracked such data — Virginia’s second-home market is holding on, although sales in some areas have slowed.

In the last six months, Lynn says, 23 detached homes have sold at Wintergreen for an average price of $535,030. Typically, the homes were on the market 81 days before a sale. Transactions for August and September were equal to or better than the same months last year, adds Lynn, a sign that buyers are taking advantage of a unique window of opportunity: a buyers’ market coupled with interest rates hovering at about 6 percent.

At Homestead Preserve in Bath County, a vacation home community near The Homestead resort in Virginia’s Highlands, sales slowed this year, compared with the first year of sales in 2006. Overall, about 150 of the community’s 450 home sites have sold, including 11 this year. “It has slowed down,” says Penny Peery, a marketing official for Homestead Preserve. “As far as the outlook, though, it’s very positive. We’ve had a lot of interest, a lot of tours. The problem is just getting people to make the final commitment, because the market is so unsure.”

So far, six homes have been built and another seven are under construction. Home construction costs have ranged from $750,000 to $3.2 million, and lot prices start at $300,000 and go to a million plus. The community, named one of the top 100 real estate developments in the World by Travel & Leisure magazine, is not discounting lot or home prices. “We don’t feel we should lower the prices, because that would hurt the prices of the people who have already bought,” says Peery. “We know we have a good product. We think things will turn around.”

The second-home niche is historically slower to react to market changes than the primary-home market, and its reactions are less drastic. “We didn’t see a change in our contracts until this past summer,” says Bitsy Davis, assistant branch manager for Long and Foster’s Smith Mountain Lake offices and a member of the National Association of Realtors’ Second Home Committee. The drop wasn’t significant. “It’s more of a dip. It’s certainly not a decline like we saw in 1991-92.” And even though appreciation is lower than the 15 or 20 percent boom-time highs, “overall it hasn’t fallen that much,” adds Davis.

Sales of existing and newly built vacation homes are whittling the inventory left by speculators. Some of them entered the market on teaser rates and adjustable rate mortgages and got squeezed out when the quick flip didn’t happen. Meanwhile, builders and developers are catching their collective breath. With the oldest baby boomers staring squarely at retirement, followed immediately by a steady stream of retirees-in-waiting, the second-home market is steadying itself for action.

Virginia, with its oceanfront on one end and mountains on the other, offers one of the broadest varieties of vacation properties in America. “Virginia has always been a very strong market, without as much of the ebbs and flows of prices you see other places,” notes Karpinski, author of “Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment.”

Realtors say that one-half to three-quarters of second-home buyers just stroke a check when they’re ready to buy, so no financing or approval is necessary (except for a spouse’s in the case of joint buyers.) But if you don’t breathe that rarified air, lenders will expect you to be within the debt-to-income limits set by Fannie Mae and Freddie Mac: Total debt payments have to be 36 percent or less of your gross income.

Interest rates are marginally higher on jumbo loans, which currently are at 6.87 percent, according to Carol Potts, branch manager for Prosperity Mortgage in Roanoke. A traditional 30-year mortgage of $417,000 comes in at 6.38 percent. Negotiating points, she says, can shift the numbers.

Homeowners can offset the impact to their bank accounts by renting out vacation property. For people getting a loan, they can add projected rental income to gross income to help balance their debt-to-income ratio.

Karpinski, who lives in Austin, Texas, developed a formula to make vacation-home debt a zero sum game: When a monthly mortgage payment is less than or equal to one peak week rental, 12 weeks of rental will cover a homeowner’s mortgage payments for the entire year. And don’t forget, maintenance costs — bills for phone, cable, utilities, association dues, trash removal — pile up.

Karpinski says five additional weeks of off-peak rentals will foot the bills.

Numbers aside, second-home purchases tend to be more emotional than primary homes. After all, vacation-home buyers are motivated by desire more than by need. “As people get older, their dreams and desires still are needing to be fulfilled, and one way they’re doing it is by investing in second homes,” says Steve Crandall, owner of Tectonics II Ltd., a Nelson County builder specializing in mountain retreats. These days, second-home buyers are looking less for an investment and more for a personal retreat. In fact, purchases of personal vacation homes last year accounted for 14 percent of all existing- and new-home sales nationally.

“In the old days, less than a quarter used their second homes year round,” says Cliff Wells of Century 21 Nachman in Norfolk. “Sandbridge, for instance, was a summer home. People would rent them out in the winter to teachers. Now, three-quarters of them use them year round.” Currently, 84 properties are available in Sandbridge, ranging in price from $520,000 to $2.3 million for a nine-bedroom, 7½-bath waterfront property.

Despite opportunities for appreciation, real estate — especially prime, resort-worthy property — is finite. While building continues at places like Smith Mountain Lake and the Roanoke Valley, boomers chasing their retirement dreams are venturing beyond resort areas and other obvious locales to find their private hideaway.

For instance, Crandall notices that more people are coming to his rural county and surrounds, where stoplights are few and far between, and locals claim the fictional John Boy Walton as one of their most notable “residents.” “We have 12 wineries, two breweries and a distillery,” notes Crandall. “We’ve even got a guy roasting coffee beans. It’s a cool place to visit. People come here and fall in love with it.”

Crandall and other builders remain optimistic that another flurry of building is around the corner. After buyers snap up the deals created by the overbuilding of the last four years, boomers will still be looking for a comfy place to land. “Buyers are still there,” says Crandall. It could be two months, he says; it could be six. “It’s an evolution.”


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