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Wealthy Americans snap up vacation homes and invest in a change of scenery in hot market

Wealthy Americans snap up vacation homes and invest in a change of scenery in hot market

FINANCIAL NEWS

Wealthy Americans snap up vacation homes and invest in a change of scenery in hot market

Tiffany Thompson decided it was too much of a good thing after a year of working from her Los Angeles home with her husband.A change of scenery and the ability to be apart on occasion in a home away from home seemed appealing.Plus, the Emmy-winning freelance TV producer and her husband, Chase Kopecky, an editor at ABC Network Television, had been saving money.“I was making more money than normal because I was able to do multiple projects at once (with no travel) and just socking it all away,” she says.In December, the couple started looking for homes in Palm Springs, a vacation destination in California’s Coachella Valley.By April, they’d bought a one-bedroom, two bath condo in Indian Wells, a 2.5-hour drive from their home.More: Vacation rental costs are surging: ‘You better book something now’More: Luxury home sales soar, even helping houses that languished on the market for months“My husband is an avid golfer, so the place was perfect,”  says Thompson. “I love the restaurants in the area and its proximity to the Joshua Tree National Park.” Thompson and Kopecky are among a growing number of Americans plunking down money to buy a second home. They are aided by equity gains in their primary home due to soaring home prices, historically low mortgage interest rates, improved savings accounts and a flexible work environment.Sales surge for vacation homes Sales of existing homes in counties with at least a 20% share of vacation homes rose by 24% on average in 2020, more than double the 11% increase in counties that don’t have a large volume of vacation homes, according to a National Association of Realtors report.In other words, vacation homes are the hottest segment of the hot pandemic housing market.The NAR defines “vacation home counties” as ones where vacant homes for seasonal, occasional, or recreational use account for at least 20% of the housing stock. As of 2019, about 10% of  the roughly 3,000  counties across the country were vacation home counties.Vacation home sales rose by nearly 17% in 2020 and by 33% year-over-year between January and April 2021.Lawrence Yun, NAR’s chief economist, said he expects vacation homes to remain a popular segment of the housing market given the continued work from home policies of many companies.That reality stands in sharp contrast to the many would be first-time buyers of primary homes who have been shut out of the market due to a lack of inventory and soaring prices.However, economists say the increase in demand for vacation homes — which tend to be in beach towns, golf resorts or ski towns — doesn’t necessarily mean it’s eating into the first-time home buyer market, largely dominated by millennials focused on good school districts in the suburbs.One evidence is the lack of the frenzied bidding wars in vacation home counties.In 2020, properties in vacation home counties stayed on the market for 59 days compared to 30 days in non-vacation home markets. And in some overheated markets like Phoenix and Los Angeles, sellers are receiving several offers — with some being tens of thousands of dollars above list price — the day of or a few days after a home goes on the market. Mortgage applications for second homes soared 84% year over year in January, down from a peak 118% year-over-year increase in September, according to Redfin, a full-service real estate brokerage where sellers pay a discounted fee.“It’s been a pretty massive financial windfall for homeowners and a number of those homeowners have turned to buy second and vacation homes,” said Taylor Marr, lead economist at Redfin. “The changing nature of work really makes the economics of owning a vacation home much more viable if you can get more use out of it by working out of it for a week or two out of the year.”Second homes also could be a good investment.“It’s now much easier to buy a second home and have part of that cost offset by short-term rental,” says Marr. “That’s also created more demand for these second homes for those who can afford them.”Amar Mehta, a partner at Ernst and Young who lives in Manhattan,  rented summer homes for a week or two in Nantucket since 2007.But over the years, Mehta says he found himself spending close to a month on the island with his wife and two young kids.“It’s a nice, peaceful environment,” he says. “You can fly up there in an hour or drive or take the ferry.”While he skipped his trip last year, he signed a lease in December for this summer.At the same time, Mehta says he was looking for a home to buy. Then in January, he found a three-bedroom home near the beach and offered $10,000 above asking price to clinch the deal.Mehta says he plans on spending more time in his Nantucket home and has rented the property out in the weeks he’ll be away.“We had someone offer 33% more than what we were asking in rent for a week we had planned to be there,” he says.Back on the West coast, Vlad Roytapel, a Redfin agent in Palm Springs, said he was seeing an influx of buyers from Southern California.“I really do believe that’s because of the decrease in flights and people feeling uncomfortable to travel by plane, but they still want to travel,” he says. “And they are buying it for a combination of personal use and as short-term rental property.”In the Upper Peninsula, most people buying cottages in the popular vacation destination in northern Michigan tend to have some local connection, said Stephanie Jones, a realtor in Marquette, which has experienced a spike in demand and prices over the last year.She said the pandemic has forced people to re-evaluate what’s important.“I think a big part of the increase is: ‘I can work remotely even if, just part of the time.’ So I want to be someplace that makes my soul happy,” she says. “And one of the things about the Upper Peninsula is it is an incredibly beautiful location.”For Thompson, the TV producer, the pandemic helped crystalize her plans.“It forced us to look at our finances and our future, and we decided what better investment than real estate in California, right?,” she says. “Sometimes you need a break from your home even if you’re still working from home.”Swapna Venugopal Ramaswamy is the housing and economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal


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