By JODI SUMMERS
Check out real estate property purchase studies. It doesn’t matter which one you read; they’re all saying that approximately 35 percent of residential real estate sold recently is second homes. The National Association of Realtors recorded an impressive 2.82 million second-home purchases in 2004, up from 2.42 million in 2003. The investment-home component rose to 1.8 million sales in 2004 from 1.57 million in 2003, while vacation-home sales rose to 1.02 million in 2004 from 850,000 in 2003. “The majority of the real gain in single-family home sales can be attributed to the vacation and investment property markets,” says John Tuccillo, a real estate analyst and former NAR chief economist. “Not only are baby boomers looking for weekend getaways, but we are also beginning to see young retirees auditioning for their retirement location. As the boomer group ages and the demographics change, a larger and larger number of consumers will be targeting that potential retirement home.”
Investors are delighted by the ways second home purchases expand their portfolios, but investors seldom consider the impact the second home market has on the local economy. Back in the ’70s, parts of Santa Monica and Venice were inhabited by a bunch of old hippies, writing stories and painting paintings, living on $200 a month. Ten years ago you could easily buy an entry-level home in Venice for less than $200,000. Today, the artists have been replaced by dot-comers, and we’re talking closer to $800,000 for that same home.
The same holds true for the island town of Nantucket, off of the Massachusetts coast. Once upon a time it was hippies living cheap, out of the mainstream, huddling around pot-bellied stoves during the harsh winter months. Nantucket, an island of wide sandy beaches, fishing and boating, offers one of the finest docking facilities in the world. Nearly 40 percent of Nantucket is protected conservation land; limited land drives up real estate prices. But in the summer, Nantucket is one of the places to be. Notables like Senator Ted Kennedy and retired TV journalist Walter Cronkite call Nantucket home.
Second-home investments have escalated island prices, not only of real estate, but of everything else in Nantucket. Ten years ago, you could buy into Nantucket for around $200,000. Now, the median price of a home is $1.5 million. Gas is $4 a gallon. A quart of milk costs 40 percent more than the next town over. The artists have moved to Vermont, New Hampshire and Maine.
“It has made the housing inventory here totally beyond the grasp of the ordinary person,” says Roy Flanders, a Nantucket realtor. “We’re in a league with Aspen, maybe the high end of the Hamptons.”
In September 2005, the median price of a home in Aspen was $3.6 million. Obviously, people who work in Aspen can no longer afford to buy into this cosmopolitan ski resort. Basalt, 15 miles away, is Aspen’s bedroom community with a median home price of $575,000. As prices in Aspen continue to rise, second-home buyers move further and further down the corridor, heading west toward Glenwood Springs, again driving up housing for the locals. Glenwood Springs is 45 miles or so from Aspen. On the other side of Glenwood Springs are Silt and Rifle. It’s said that Aspen’s blue-collar work force lives as far as Silt.
That same scenario is happening in the California resorts, such as the Lake Tahoe area. “In the past five years, the prices have gone way up, driven by the second-home market,” says Tim Hauserman, a realtor in Tahoe City. “The locals haven’t been able to buy a home because the prices are so high. Many of them are moving out of town.”
The average price of a home in Tahoe City, which is close to Lake Tahoe, is $700,000; five years ago, it was half that.
“This has affected our schools. My daughter’s high school has lost about 10 percent of its students because people have moved away,” Hauserman says. “The biggest effect on the locals is that it’s hard to find employees for businesses. Teachers — unless they have lived here a long time — they can’t afford to buy a house. They move to communities that are less expensive nearby.”
Californians purchasing second homes are also driving up prices throughout Hawaii, accounting for 40 percent of the purchases in 2004. Ricky Cassiday, owner of Honolulu-based , did a study of 2004 sales activity in the 14 resort residential communities that span the four Hawaii county islands of Oahu, Maui, the Big Island and Kauai.
Whereas Californians account for 40 percent of purchases, Hawaii residents accounted for 29 percent of the market. Buyers from Washington accounted for 6 percent of the purchases, while Colorado, Alberta and Nevada residents each claimed 2 percent. Buyers paid an average of $960,480 for homes, condominiums and vacant home lots in Hawaii in 2004, generating sales of $2 billion on 2,116 closings.
The question is, when the island locals can no longer live in Hawaii, where will they go?
What exactly do people do with a second home? Survey says: ■ 30 percent of buyers who purchase second homes wanted to diversify investments. ■ 28 percent sought rental income. ■ 14 percent wanted a personal or family retreat. ■ 6 percent planned to use the property for vacations. ■ 5 percent had extra money to spend. (Jodi Summers is director of the investment division at Boardwalk Realty Santa Monica. Contact her at or 310-309-4219. Visit her community history Web site at www.santamonicalandmarks.com.)
Originally published in the Santa Monica Daily Press print edition on December 7, 2005. Read the original PDF.