Sales of second homes up 24% since 2001
From staff and wire reports
Daily Press (Newport News, VA), August 15, 2004

Low interest rates and tax changes are creating hot markets nationally and in beach areas.

Fueled by low interest rates, changes in tax laws and increased affluence among baby boomers, vacation- and second-home sales are soaring, state and national real estate experts say.

Americans bought and sold an estimated 445,000 second homes in 2003—up 24 percent from 359,000 in 2001, according to the National Association of Realtors. The association predicts 2004 will be even stronger.

Although there's not much of a secondary home market on the Peninsula, or even most of South Hampton Roads, the market for vacation homes is strong along the Outer Banks in North Carolina.

In Kill Devil Hills, N.C., single-family vacation homes have been a hot commodity for several years, according to Richard Hess, vice president and general sales manager for Sun Realty, which operates seven offices from Corolla to Hatteras Island.

"It's possible to find a house that's sold a few times over the past several years," Hess said. "And there's been an increase in price each time. The average single-family home here now sells for $541,483. And the average house has had a 20 percent appreciation value each year for the past three years."

Hess said 1,308 homes have sold in the Outer Banks multiple listing service since January, and the majority of those homes have been secondary homes, he said.

Interest in second homes soared in 1997 when tax law changes helped free up profits from sales of primary homes. The change ended taxation of the first $500,000 in profits on a sale of a single-family home. Previously, sellers had to put any profit into another primary residence to escape taxation.

In addition, there are more buyers with the wealth to purchase vacation or weekend homes, market experts said. There are about 7 million second homes in the United States, with stock projected to grow by an average 125,000 new units per year in the next decade, according to the National Association of Realtors.

With inventory available and mortgage rates still near historic lows, agents said, buyers have been eager to find homes they could retreat to on weekends and vacations.

Richmond contractor Danny Meyer bought his beach home three blocks from the Oceanfront for $249,000 last year.

"I love it," Meyer said. "It's a place to go to get away from work and home." Meyer said his wife, 17-year-old daughter and himself use the house as a getaway all year round.

In comparison to Meyer's find, last year, a 3,500-square-foot Oceanfront home built in 1998 sold for $4.2 million in 39 days, Collins said.

"That was our highest sale last year, and right now we have a listing for $4 million along the beachfront. In comparison, a home located off the beach on 53rd Street is listed for $474,999.

Collins said her 61 agents sell Oceanfront homes in Virginia Beach and the Outer Banks.

"The further down the Outer Banks you go, the more expensive it gets," she said.

But there is a cautionary note for anyone who buys for short-term ownership: When interest rates rise, prices that second homes fetch often soften more than those of primary homes.

"When interest rates go up, the secondary home market tends to take the hit a lot faster and a lot deeper than the primary home market," said Gary Taylor, president of the Appraisal Institute based in Chicago, whose group specializes in residential and commercial real estate appraisal education and research.

But that is not happening yet.

Especially surprising experts this year is the rise in the number of buyers willing to pay more than $2 million for second homes.

Though interest rates have nudged slightly higher in recent weeks, real estate experts say they don't expect sales on second homes to slow. That's because wealthier homebuyers in the market for weekend or vacation retreats are not terribly bothered by incremental rises in interest rates.

Along the Oceanfront in Virginia Beach, the market is hot, hot, hot.

"It's happening," said Mary Lynne Collins, managing broker for the Long & Foster Real Estate office located at the Virginia Beach Oceanfront. "There's a lot of people looking here for secondary homes. I get calls from agents in Pennsylvania, northern Virginia, or wherever, saying that they're sending people down to look.

"It's a very active market. Last week, I had four calls," Collins said.

Daily Press staff writer Jody Snider and a Chicago Tribune report contributed to this story.

Copyright © 2004 Daily Press, Inc.

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