Decline in Vacation Home Prices May Present an Opportunity
A recent cover story in Barron’s (Subscription Only) is devoted to the collapse of the second home market in many prime vacation areas. The article titled “The Big Glut--Trouble in Paradise� by Robin Goldwyn Blumenthal chronicles the decline in prices of prime properties in such posh areas as Naples, Florida, Cape Cod, and Barnstable, Mass.
Blumenthal reports that, “The Naples experience is being repeated, to one degree or another, in a variety of other vacation hot spots -- from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J.� He quotes a Scottsdale realtor as saying that Phoenix in recent years has been overrun by property flippers from California “--- unit sales now are down by 40%-42%, and the city's inventory of unsold homes has shot up more than five-fold, to 39,000".
With second homes accounting for 40% of all home sales in 2005 and with the huge run-up in prices in recent years, the market is probably due for a correction. The article reports that, “Tucson, Prescott and Phoenix in Arizona are estimated to be as much as 52% overvalued based on income levels, population densities and historical prices. Also high on the list: Bend, Ore., and New Jersey's Ocean City and Atlantic City, where homes are deemed overvalued by 50% and 60%, respectively.�
The good news for someone in the real estate investment and vacation rental business is that these market corrections generally present a good opportunity for an investment when the market is in a downturn. The prudent vacation rental investor will carefully study the market for vacation rentals, study the competition, and determine how many weeks out of the year that a property can be rented and at what price. After doing so the investor can determine what price to offer for properties that will be on the market.
