Cabin fever in housing market
Boomers nearing retirement are heating up sales for modest 2nd homes
By Chryss Cada
Special to The Denver Post
With the oldest wave of baby boomers preparing for retirement, many are rushing to stake their claims on second-home property in Colorado's most desirable areas.
"There's a limited supply, and demand for retirement homes and second homes is up all over the country," said Joe Wise, managing broker of First Colorado Realty in Estes Park. "Given the law of supply and demand, you know what that means for prices."
Prices - and sales - of second homes are up around the country, according to the National Association of Realtors. "In 2003, we saw a record 445,000 sales in the second-home market," said spokesman Walter Molony. "The way 2004 is shaping up, I expect we'll exceed that record."
About 4 percent of all homes tracked by the U.S. Census Bureau fall into the second- or vacation home category. An NAR study of second-home owners published in November 2003 showed that 78 percent of all second homes were used primarily for recreational use, but 37 percent of those who bought second homes in 2002 said they did so for investment purposes.
The median second-home price was $150,000 in 2003, the NAR found, but more than one in four cost less than $100,000. Only 6 percent fell into the $400,000-and-above price range.
"Second homes are becoming more and more accessible to families with an average income," Molony said. "In the past decade or so, we've seen a real shift away from the upper end being the only folks who could afford a vacation home."
Today's typical buyer is 47 years old and has a household income of $85,900, according to the NAR. Roughly 66 percent of them are married couples.
Although in their early 50s, Tom and Erin Santilli of Littleton fit the profile.
"We're not in that wealthy income-tax bracket where we want to buy a house that just sits up in the mountains empty except for the few weeks a year," Tom Santilli said.
The couple found a two-bedroom lofted "condotel" that overlooks a small river in Estes Park for $205,000. They own the 732-square-foot space but hired a property management company to keep it rented and maintained. They use the condo, which is 90 minutes from their Littleton home, up to 14 nights a year.
"We're looking at it primarily as an investment, but one that we can get some use out of," Santilli said. "Even if we bought a vacation home that was just for us, we probably wouldn't use it more than a couple of weeks a year."
The Santillis looked at property in resort areas but chose Estes for two reasons. "We don't ski," Santilli said, "and Rocky Mountain National Park is our favorite place to spend time."
Other low-profile communities across the state, from Kremmling to Westcliffe to Pagosa Springs, are joining Estes Park as attractive second- home sites, but without movie-star price tags.
"For people who want the mountain ambience but who don't have to be 10 minutes from a ski area, Estes Park is an affordable place for a vacation home," Wise said. "We have a fair amount of inventory; it's still a buyer's market up here."
Homes took an average of 130 days to sell in Estes Park last year, and Wise expects the $2 million property he has listed to take even longer.
Land is the town's fastest-moving real-estate commodity. "There is a limited amount," Wise explained, "so people are rushing to get into the market while they can. Even if they can't afford the house yet, at least they have the land."
On a national level, David Hehman has noticed the same trend.
"Given the scarcity of land in prime retirement locations, people like the security of having the land," said Hehman, co-chairman and CEO of EscapeHomes, which specializes in vacation properties. "They know that when they're ready, there's a piece of land down in Florida or wherever waiting for them."
With 80 million baby boomers entering retirement age over the next 10 years, he added, the demand should grow. "You're going to have a massive demand even if only a relatively small percentage of those people buy a retirement home," he said.
Adding fuel to that demand are low interest rates and the Taxpayer Relief Act of 1997, which allows home sellers to exclude from taxes up to $500,000 in profits on the sale of a house they have lived in for at least two years.
"People have been able to use some of the equity from their primary residence to purchase a second home," said NAR's Molony. "Many people were able to trade down on their primary residence and enter the second- home market with the money."
That change in taxation allowed many first-timers to buy second homes, but high-end destinations such as Aspen are more likely to attract people in the market for their third or fourth home.
"We see buyers who understand that land here is a finite quality," said Gary Feldman, a broker with Coates Reid & Waldron, the Sotheby's affiliate in Aspen. "They are willing to pay the price to be here."
Last year, that price averaged $3.5 million. This year, Feldman expects it to be even higher.
"Prices just keep going up, up, up," he said. "Every time we hit a new high, we think it has got to be the ceiling ... and then we shatter it."
Feldman said he noticed a sharp uptick in the market last fall and said his realty is on course for a record year. As of May, it had booked nearly $170 million in sales, most of which came from second, third or even fourth homes.
"Buyers seem to look at real estate in our area as a safe, blue-chip investment," Feldman said. "When the stock market is flat, they take their money out of there and put it into Aspen.
"We have a limited commodity being chased by the world's wealthiest people."
Be it ever so humble second homes are located:
34% in suburbs/subdivisions
32% in urban locations
14% in small towns
12% in resort/recreation areas
9% in rural locations
Source: National Association of Realtors
Some like it cooler
Traditional hot spots for second homes have been literally hot, or at least warm, places.
"Water features are still the No. 1 attractions for vacation homes," said Amanda Sturges of EscapeHomes. "That said, mountain-destination efforts to increase warm-weather activities are starting to pay off in increased interest from second-home buyers.
"We're seeing more little-known places in cooler climates really taking off as vacation-home destinations."
The company's list of top emerging second-home markets includes:
Colorado's North Fork Valley
Darby, Mont.
Fairmont, Minn.
Fergus Falls, Minn.
Gualala, Calif.
Kern River, Calif.
Pinetop-Lakeside, Ariz.
Sisters, Ore.
Sitka, Alaska
Spearfish, S.D.
Source: EscapeHomes.com