Consumer Confidence and Second home sales.
Realtors and developers whose main income stems from discretionary vacation home sales are in for some tough times.
The baby boomer market (our target) has lost 30-40% of their wealth in the last 6 months.
Sellers will need to face the facts that the prices will need to equalize in much the same fashion. To keep pace with consumer confidence second homes will need to return to pre- 1999 prices. If you purchased prior to 1999 you will come out whole, if not you may not wish to sell for the next few years or be prepared to loose equity if not principal.
Location will keep some places viable, the cream of the crop waterfront, ski areas, and true destination resorts will survive while prices adjust. While others resorts that were marginal destinations will feel the full abandonment of past prospects.
Developers relying on wishful thinking will only prolong the recovery, and allow older resale’s to compete directly with newer inventory. As the resale-sellers will have more equity and will be able to accept further discounts when they are ready to sell (or have to sell).
Amenities that were once the drawing card will create a burden that many will see as added expense that is harder to justify in their seasonal ownership and current economic situation.
Retirement homes will face the same issues, and consumers will see this lifestyle as frivolous when affordable seasonal rental options will be plentiful and avoid the cost of ownership.
Some Solutions?
Bite the bullet now, rather than letting the interest clock tick…wishful thinking will not change consumer confidence that can only be over come by perceived value.
Look to amenities that are on a cost/use basis, part-time owners will revolt against full time fees for occasional use, adjust hours of operation& Staff (Find an income stream for your facilities, gym memberships, weddings, conferences, swimming lessons Etc).
Until the wealth is regained, your buyers will be: Bargain hunters, Repeat visitors that waited for the shift in value, and future retirees- who will off-set ownership cost with rentals paying down the debt until the property is unencumbered and affordable to own.
Resort Rental management programs should look for 1-3-6 months seasonal user, to off-set some of the loss of second home sales and boost the traditional vacation (week) rentals.
Added resort values: partner with attractions and events to barter access for your owners in exchange for resort services or amenity sharing. Sponsor a non-profit event for the Good Publicity and free advertising.
Be a Sniper rifle not a shot-gun, look at the current property tax rolls of your resort, they are a fine predictor of your primary customer. Don’t attempt to attract the whole state just the neighbors of the ones that already own there (this is your new target).
Look to current owners for assistance, they have a vested interest in the health and well being of the resort, Reward them with a token for owner referrals (gift certificates, golf , lift tickets, dinner or the like).
Have the seller or developer speaks to their bank early, this is a partnership and a short sale is better than a future foreclosure anytime. Seller have to get over this fear, it may make the difference between a sale and financial ruin down the road.
Long term Recovery.
The real estate growth cycle was great for 14 years (1991-2005 nationally) it has been declining for the last 2 to 4 years so far. I believe the turn around is still 3-5 years ahead of us. If the run up was sustained for 14 years the recovery will take half (7yrs) that amount of time to recover fully.
It’s not all doom and gloom, but adjustments will need to be made in order to compete and remain healthy in the second home and retirement market. The resorts and developers that are slow to change their business model may not survive the ones that do will attract a vibrant community that will stick to the plan and become closer to their neighbors and families in the process.
I have been through this cycle before.
The last two real estate recessions were mild compared to this one. Many of my seller’s don’t have to sell, but if they want to I remind them they have a chance to trade equity if they buy in the same market immediately after their sale. If they don’t intend to re-purchase they should consider rentals for a time to establish 1099 income and make a possible future loss a deduction. Or sell their income property using a 1031 exchange and purchasing a more suitable income property in a location they see use later in life.
These are my opinions only, and I’ve been a resort Broker for 25 years so I guess I could be wrong.
Concerns, Solutions and Predictions, Am I wrong what do you think.
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