If that prediction proves correct, the advice to would-be buyers is obvious: get in early. Over the next few years, says the National Association of Home Builders, construction rates on vacation homes will double to about 100,000 a year. Despite that expanded supply, price hikes for vacation homes may mimic the three-digit inflation racked up on primary residences in the 1970s and early 1980s, when this crowd bought their first houses. And there may be more pressure on prices thanks to another boomer trend: people who buy homes in vacation locations but live there year-round. Vermont realtor Pall Spera reports a 30 percent jump in the last two years in the number of vacation homes bought by people who intend to live permanently in Stowe and “commute” via modem.
Although the first wave of baby boomers is 48, the second-home rush has yet to take off, concedes Michael Carliner, Home Builders economist. But if this generation is moving more slowly in this direction than its parents did, it’s no surprise. Boomers married later and had kids later, too.
Meanwhile, it’s a golden opportunity for the wealthiest of the generational avant-garde. Here are a few points to keep in mind if you visualize Valhalla at every dune-mounted “For Sale” sign.
If rising interest rates have you reaching for the checkbook, hold on. The surge in rates has probably slowed for now. And summer is a lousy time to buy a beach house. Why waste those hard-earned weeks of serenity talking terms? More important, “prices fall in the season immediately following the tourism peak,” reports Richard Ragatz, an industry researcher. Empty houses are easier to inspect and owners may knock a few thousand off the price, rather than carry the place through winter.
The postseason purchase strategy is just as appropriate for skiers as for sunbathers. The best time to snag that mountain chalet is March through May.
Cranky legislators don’t like to underwrite vacation homes, and they’ve long cast a covetous eye on the last drop of federal revenues that could be wrung from those who own them. This summer, Congress is expected to close a loophole that allows homeowners to pocket rental income tax-free if they rent out a vacation home for 14 days or fewer a year. (Income on longer rentals is already taxable.) The provision could cost the typical beneficiary some $485 a year, based on average weekly rent of $783.20 and a tax bracket of 31 percent.
An even bigger – if more distant – threat is the death of the mortgage-interest deduction for second homes. It’s unlikely this year, Hill staffers say, but the ever-present deficit makes this hardy perennial ever more attractive. Without the deduction, a buyer with a $200,000, 8 percent loan could pay $4,939 more in taxes the first year alone.
Remember time shares? High-pressure sales techniques and mediocre condos scared off buyers in the 1980s, notes researcher Ragatz. But it may be time to reconsider. Today’s time shares tend to be better buildings in more interesting locations (Mexico is popular), and owners can trade time slots with each other worldwide. Two major exchanges, Interval International Inc., in Miami and RCI Inc., in Indianapolis, boast directories with thousands of developments and close to 3 million members. (Ten years ago there were only 620,000 time-share owners in the United States.)
But be choosy. Trading partners will want a two-bedroom apartment in a high-quality building designed to be a time-share resort, not a converted condo. And don’t expect it to come cheap: the average price for that one-week-a-year piece of paradise is $9,500, plus $300 annual maintenance, and annual exchange dues of $75.
