John Cotton – Option for investors

Dreams of owning a vacation home are coming true for thousands of people, and nowhere is this more evident than in some of the state’s hottest vacation spots.

Realtors handling second-home sales from Cape Cod to the Berkshires to the North Shore say business has been steady over the last several years, and some predict second-home sales will skyrocket as the large baby boom generation continues to move into the prime years for buying vacation dwellings.

The other good news is that the current downturn in the stock market hasn’t necessarily meant doom for the second-home market. Some Realtors said the stock market problems could be boosting vacation home sales, pushing people to invest their money in more solid and tangible investments like real estate instead of risky stocks.

“It’s a double-edged sword,” said John Cotton, owner of Cotton Real Estate in Osterville, referring to the stock market woes.

Cotton explained that some stock-market investors, having seen their money vanish, can’t afford a second home. Yet more established and affluent people can pull their resources out of the stock market and buy homes instead.

“I know many people who are happy they took their money out of the stock market and invested it [in second homes],” Cotton said.

Anne Blatz, vice president of operations at Kinlin Grover GMAC Real Estate in Brewster, agrees that the stock market troubles may be a mixed blessing.

“There is a movement among young investors to diversify, and the blips in the stock market may have had as much of a positive impact on the real estate market as some people may have assumed it had a negative impact,” Blatz said.

The real boost in second-home sales, however, appears to be coming from people in their 40s and 50s who have extra cash to pour into a vacation home, whether a luxurious waterfront property or a modest cottage.

“The 10 most economically and financially productive years for people are between the ages of 45 and 55,” said Cotton.

People in that age group have been the traditional buyers of vacation residences on Cape Cod and elsewhere, according to Realtors. Perhaps the good news for Realtors is that the boomer generation – the more than 75 million people born between 1946 and 1964 – is aging into those prime vacation-homebuying years.

“They have the money and the desire at the same time,” said Cotton.

The strong upward trend in second-home sales is also partly driven by changes in the tax law in 1997 that makes it more attractive to own property, said Walt Molony, a spokesman for the National Association of Realtors.

According to NAR estimates, 415,000 second-home sales were recorded last year – 57 percent more than the 264,000 sold in 1991. Last year’s sales represent about 7 percent of the new- and existing-home market.

NAR measures second-home and recreational sales activities through surveys and won’t have more official statistics until its next homebuying and selling profile is released next year.

NAR estimates that more than 1 million new vacation homes must be built over the next decade to keep up with the demand from the large number of people in their 40s and 50s wishing to buy second homes.

‘Limited Commodity’
In Massachusetts, regional Realtors’ groups, including the Cape Cod & Islands Association of Realtors and the Berkshire County Board of Realtors, do not track second-home sales.

However, according to U.S. Census data, 3.6 percent of the state’s total housing stock, or 93,771 homes, are seasonal. That’s five times more than two decades ago, when only 15,904 homes, or 0.72 percent of the state’s housing, were listed as “occasional use homes” on census forms.

In the 1980s, the vacation home market suffered in Massachusetts and other parts of the country because of tax reforms that severely limited investment considerations, according to real estate leaders.

More than a decade later, tax-law changes that allowed most sellers to exclude $500,000 in capital gains from taxation encouraged many homeowners to trade down to smaller primary residences and use the profit to buy second homes without being penalized.

The Cape area benefited greatly from these changes, with many people moving from more expensive Greater Boston suburbs to communities like Falmouth and Sandwich. Those buyers experienced what Realtors call the “Cape Cod windfall,” said Jamie Regan of Century 21 Regan Realty in Mashpee.

In the 1990s, the Cape area saw an influx of middle-aged people who set up offices in their homes and left behind long commutes to Boston or other city offices.

Regan said he is still seeing many buyers who telecommute, but he worries that there won’t be enough townhouses, condominiums or single-family homes to accommodate the growing numbers of buyers in their 40s and 50s that want a vacation home there.

Stricter environmental and building regulations have made fewer parcels of land available for development. That scarcity will lead to the appreciation of home and land values and a shrinking of the “Cape Cod windfall,” Regan said.

“We just don’t have many new opportunities here on the Cape,” Regan said.

At Kinlin Grover GMAC Real Estate, which handles home sales from Wellfleet to Falmouth, between 38 to 42 percent of all transactions over the last five years were for second homes, according to Blatz.

Blatz said the more remote areas of Cape Cod, like Wellfleet, have a bigger percentage of vacation home sales while communities like Falmouth and Sandwich have more primary residence sales.

More and more young buyers have been emerging to purchase permanent and vacation homes on Cape Cod, according to Blatz.

While Blatz maintains that second-homes sales are part of the “discretionary market” and may suffer during tough economic times, she also predicts that home sales will remain strong.

“Cape Cod is a limited commodity,” she said.

On the North Shore, the fluctuations in the stock market and economy have not drastically affected the second-home market, according to Michael Beaton, partner and co-owner of Beaton Real Estate in Rockport.

“It [real estate] seems to be a much safer investment these days,” he said.

Beaton said he has seen buyers pay “pretty substantial prices” for homes only to demolish them and rebuild them.

In Western Massachusetts, the second-home market has always been strong in communities like Lenox, Lee, Great Barrington and Stockbridge, according to a real estate agent in the area.

“It’s [the second-home market] consistently increased,” said Sherry Street, president of the Berkshire County Board of Realtors.

Street said the Berkshire County Board of Realtors does not collect statistics on second-home sales, but last year Realtors had a difficult time finding homes for prospective second-home buyers.

Nowadays, Street is not hearing that there is a tremendously low supply of vacation homes, but she said the demand is still strong.

The Berkshires, like Cape Cod, draws buyers from Southern Connecticut, New York City and New Jersey who can afford homes in the Hamptons, Catskills or Jersey Shore.

But Bay State Realtors said homebuyers may get more for their money by coming to Massachusetts. Homebuyers and vacationers also don’t have to compete for services like they do in other overcrowded and popular vacation spots, said a Great Barrington Realtor.

Cape Cod has a key advantage in terms of the market it can reach, according to Cotton of Cotton Real Estate. The Cape is located within a four-hour drive of heavily populated areas.

People in their 40s and 50s, with retirement on their minds, who live within that radius have several options when deciding where to buy their second home, including Cape Cod and the New Jersey Shore.

“What their best option?” Cotton asked. “I think it’s the Cape.”

Second Homes Become The First Option for Many

by Banker & Tradesman time to read: 5 min