Mortgage boom for second homes takes hit amid new lending rules
The pandemic created a tremendous interest in vacation homes across the country. Throughout the last year, many people purchased second homes as a safe getaway from the challenges of the health crisis. With many professionals working from home and many students taking classes remotely, it made sense to see a migration away from cities and into counties with more vacation destinations.
The 2021 Vacation Home Counties Report from the National Association of Realtors (NAR) shows that this increase in vacation home sales continues in 2021. The report examines sales in counties where “vacant seasonal, occasional, or recreational use housing account for at least 20% of the housing stock” and compares that data to the overall residential market.
Their findings show:
- Vacation home sales rose by 16.4% to 310,600 in 2020, outpacing the 5.6% growth in total existing-home sales.
- Vacation home sales are up 57.2% year-over-year during January-April 2021 compared to the 20% year-over-year change in total existing-home sales.
- Home prices rose more in vacation home counties – the median existing price rose by 14.2% in vacation home counties, compared to 10.1% in non-vacation home counties.
This coincides with data released by Zelman & Associates on the increase in sales of second homes throughout the country last year.
As the data above shows, there is still high demand for second getaway homes in 2021 even as the pandemic winds down. While we may see a rise in second-home sellers as life returns to normal, ongoing low supply and high demand will continue to provide those sellers with a good return on their investment.
If you’re one of the many people who purchased a vacation home during the pandemic, you’re likely wondering what this means for you. If you’re considering selling that home as life returns to normal, you have options. There are still plenty of buyers in the market. If, on the other hand, you want to keep your second home, enjoy it! Current market conditions show that it’s a good ongoing investment.
As vaccines are administered and travel resumes, many of us are beginning to plan for those long-awaited vacations we missed out on over the past year. Some households are focusing their efforts on buying a vacation home rather than staying in a hotel, too. The National Association of Home Builders (NAHB) reports:
“Second homes (i.e., homes sold to buyers who are not going to occupy the home year-round, but use it as a vacation home, investment property, etc.) account for 15 percent of new single-family home sales.”
It’s not surprising that there’s an increase in demand for vacation homes. The majority of Americans are realizing they prefer to be around small groups, as shown in a recent survey from The Harris Poll:
“Social distancing taught consumers new things about how they like to socialize; (75%) said, ‘during COVID social distancing I realized I preferred smaller social gatherings at home or at friends’ place.’”
Not only are vacation homes seen as a potentially more pandemic-friendly way to travel and socialize, but they can also serve as an extended home-away-from-home. With more Americans being given the option to continue working remotely or retire earlier than expected, vacation homes can be used year-round. The NAHB explains:
“Remote work arrangements have made it possible for some wealthier Americans to move to alternate locations that are not just small, suburban shifts from within their current metro area. More fundamentally, second home demand may also be benefitting by an acceleration of retirement plans, as well as stock market gains.”
The demand for vacation homes has increased and will continue to rise as we head into summer. If you own a house in a destination area and have thought about selling, now is a great time to take advantage of today’s high buyer interest. Let’s connect to discuss your opportunities in our local market.
If you don’t want (or can’t afford) to buy a timeshare or fractional share property, there is now another way to spend your vacation that doesn’t involve staying at the local Best Western or Comfort Inn.
A condo hotel isn’t just a property that includes both a condominium complex and a hotel complex. So, for example, the new Mandarin Oriental under construction in Boston’s Back Bay will not be a “condo-hotel” (or “condotel” as they are sometimes called). There, 50 owners will live in their residences, full-time, while nearby, hundreds of people stay in the attached hotel (sorry, “ultra-luxury hotel”), and ne’er the two shall meet (at least if the homeowners have their way … ).
A condo-hotel, in contrast, is where you buy a condominium, usually as a second and/or vacation home, and you own it, totally, outright – you get a deed to it.
But, you have the option to rent it out, for any of the time you aren’t living there.
(In fact, some programs require you to be away from your property for a certain number of days – basically so that you don’t end up using the condo hotel as your primary residence. Donald Trump’s SoHo condo hotel is the most well-known example of this – he says he’s building a hotel, but local residents fear he’s just building residential condos, and the neighborhood is zoned only for industrial or commercial uses. Details, here.)
As I mentioned, many times the condo-hotel complex will be attached to a regular hotel. For example, Ritz Carlton has several of these types of properties, in Jupiter, Florida, and St Thomas, US Virgin Islands, specifically. There are regular Ritz hotel suites, and also condos. Vacationers looking for a place to stay could book a room at the regular Ritz, or they could try to find a room in the condo hotel section.
The reason a vacationer would want to stay in the condo-hotel instead of the regular hotel is that oftentimes, the quality of the home is much better than the hotel rooms across the complex. And, they can be larger, and they are probably fully furnished.
It can be a little confusing, but it’s important to make the distinction.
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At first, you’d only see these types of properties in popular vacation destinations, which made sense since many owners wouldn’t want to be there full-time, and there was a pool of visitors looking to rent. Now, condo hotels are sprouting up, all over the place.
If you are looking to buy in a condo-hotel project, it is important to understand that this should not be considered an investment property – there is very little chance you’ll make back in rents what you’re paying on your mortgage loan.
Instead, consider the revenue as a way to defray your annual expense.
Also, the resale market has not yet been proven. Not everyone would want to buy in development of this sort. As well, these new condo hotels are going up in “less than prime” locations, which are more likely to suffer, in any economic downturn.
More: For a Condo Hotel, Try South Beach Bend – By Charles Passy, The New York Times
Also: Condo Hotel Center – all about condo hotels
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Updated: Boston Real Estate 2021