Figures on second-home market surprise real estate industry
Although baby boomers make up a large part of this market, a growing number of foreign buyers also are in it.
Knight Ridder Newspapers
PHILADELPHIA — It came as a big surprise to the real-estate industry this past year that second homes accounted for more than one-third of annual sales.
Before 2005, the National Association of Realtors' (NAR) survey techniques failed to accurately gauge the size of this market, even though anecdotal evidence had indicated a substantial increase in second-home purchases over the previous decade.
Newly accurate or not, the percentages don't tell the whole story: Although baby boomers make up a large part of the second-home market, a growing number of foreign buyers also are in it, taking advantage of a weaker dollar.
The opposite is true, too: Many U.S. buyers are finding the dollar buys more in foreign markets, especially Latin America and Eastern Europe.
The second-home market has become so large that 140,000 of the nation's more than 1.6 million Realtors said they specialized in it in 2005, a 30 percent increase over 2004. A clear indicator of its importance came in late October at the Realtors' annual meeting in San Francisco, when the group announced a new certification program: Resort and Second-Home Professional Specialist.
When the second home can be as near as 50 miles — or as far away as 5,000 — from the primary residence, knowing the market is critical to an agent's success, said Maire Rosol, a Park City, Utah, Realtor who specializes in resort sales.
"We have a lot of buyers coming here from countries that have security problems, and we are finding that these buyers favor gated communities," Rosol said. "From what they've told us, they find being able to ride a bicycle for long distances safely worth the price."
Ron Acker, principal broker at Re/Max 200 Realty in Winter Park, Fla., said in resort areas agents who are used to selling primary homes often don't realize that many second-home buyers are looking as much for an investment as for a place to live.
"Don't assume this is their last home," Acker said. "They might sell someday."
Because Acker's market encompasses the area around Orlando, including Walt Disney World, his clients are a mix of American and foreign buyers. His agents speak English and seven other languages.
British buyers are spending an average of $200,000 to $400,000 for houses, and most spend two to four weeks a year in Florida and rent out the houses the rest of the time, typically to other Britons, Acker said.
In addition to being drawn by Mickey Mouse, he said, "the British are attracted here by the price, the weather and the relatively inexpensive airfare.
"Foreign buyers prefer places close to an airport that are easy to take care of," Acker said.
Rosol said the needs of foreign buyers differ from market to market and that U.S. real-estate agents "have to be aware of cultural etiquette and practices that are used in their home markets."
Panama and Costa Rica are trying to lure British second-home investors from Florida, Acker said. Their real-estate associations were well-represented at the NAR convention, looking to set up cooperative deals with agents from the U.S. and Great Britain.
The recent increase in the number and intensity of hurricanes in Florida has shifted a lot of buyers "away from the ocean and to the golf-course communities of the interior," Acker said.
Some of that shift can be attributed to what Steven Friedman, national director of housing at Ernst & Young, calls "the Aspen effect," meaning that when prices get high enough, "second-home owners start leaving Naples, Fla., for the mountains of Tennessee."
Retired outside U.S.
Meanwhile, Rosol said, about 1 million Americans have retired to Mexico, Costa Rica and emerging markets in Eastern Europe.
Buyers from abroad often capitalize on other countries' problems.
"Foreign buyers started considering Argentina when we devalued our currency and property values dropped 40 percent," said Paul Reynolds, owner of Reynolds Propiedades in Buenos Aires. "Those values have only just recovered to 1997 levels, and with airfare from Miami only $700 round-trip, we are drawing in a lot of Florida investors."
Short-term rentals are popular because a fully furnished apartment in Buenos Aires averages $400 a week, while one night's stay in a comparable hotel runs from $100 to $300, Reynolds said.
"Occupancy rates on these are 80 to 90 percent, so you can recover your investment," he said. "But then again, you can buy a 220,000-acre farm in the interior for $1.5 million, so your dollar is going farther."
Mexico is becoming the biggest draw for Americans because, according to AARP magazine, "for $600 a month, retirees can live in a three-bedroom home with a gardener."
Seattle's Tom Kelly, who with Mitch Creekmore wrote "Cashing In on a Second Home in Mexico" (Crabman Publishing, $19.95), said significant changes in Mexican law offering protections for American investors created the boom.
"Americans have realized that the rates of return and appreciation" on Mexican properties exceed those in the U.S., Kelly said.
New real-estate licensing laws, third-party escrow and title services, and the emergence of U.S. lenders in the Mexican market have contributed to the change.
Houses rented out
Like the British in Florida or Philadelphians at the Jersey Shore, some second-home buyers rent out their properties part time.
Christine Hrib Karpinski, author of "How to Rent Vacation Properties by Owner" (Dearborn Trade, $19.95), said many investors rush into buying without knowing the first thing about the rental market in a particular area.
"When purchasing vacation homes, it's a given that you need to know a lot about the area where you want to buy," she said. "Included in that is knowing about strict governing rules, regulations and laws that apply exclusively to vacation rental homes."
Rental income appears to be the last thing on the minds of many second-home buyers in Manhattan.
"A lot of South Americans maintain residences for personal use, not as investment rentals," said Susan Greenfield of Brown, Harris & Stevens in New York. "They also may have places closer to home in Florida. The most sophisticated buyers have larger residences in which they maintain a full-time staff."
The boom in second homes doesn't come without pain. In some resort areas, an abundance of second homes has led to a decrease in affordable housing for permanent residents, said William S. Hettinger, president and chief executive officer of Wyndham Financial Group.
"Maintaining a balance in support housing is critical to protecting the core of the community — its residents and workers," Hettinger said.
And the second-home movement probably can't be sustained at current levels.
"We can't do another 35 percent market share of second homes," Ernst & Young's Friedman said. "That is the peak."