More Americans are sticking close to home these days, choosing nearby vacation rentals for holidays and getaways, and likewise, a growing number are buying second homes for enjoyment and as rental investments.
The vacation- and second-home market is, in fact, appreciating faster than the already record-breaking Southern California real estate market, according to John Karevoll, an analyst at DataQuick Information Systems. And it is poised for an even bigger surge.
"This is discretionary buying," Karevoll said. "It fluctuates more than primary-home buying does. When the market goes up as a whole, the vacation- and secondary-home market goes up faster. When the overall market goes down, it goes down faster."
The increases in second-home purchases and vacationers choosing to forgo the expensive European or tropical island trip for a holiday closer to home are attributed to continuing concerns about safety and terrorism, according to David Lereah, chief economist for the National Assn. of Realtors in Washington, D.C. "Since 9/11, it's about security," Lereah said. "People don't want to stray too far from home."
This nesting mentality, and double-digit appreciation in local real estate while the stock market sags, is fueling the second-home market, experts say.
Although the Realtors' association has yet to complete tabulations of 2003 second-home sales, a record of about 445,000 sales nationwide is expected. Currently, there are about 7 million vacation homes in the U.S. and about 500,000 non-owner-occupied homes in Southern California. The mountain resorts of Big Bear, Lake Arrowhead and Running Springs and the desert communities of Palm Springs, Rancho Mirage and Palm Desert make up 90% of the Southern California market for vacation and rental homes.
Many local areas popular for vacation rentals are enjoying tremendous appreciation in prices, according to sales tracked by DataQuick. Among those at the high end of appreciation in February were Laguna Beach, up 31.3% from the same month a year earlier; the southern area of Palm Springs, up 51.6%; and the mountain community of Crestline, up 53.6%.
Median prices for second homes sold during the first quarter of 2004 were $238,000 in the greater Palm Springs area and $194,000 in the mountain communities.
Karyn Benjamin, 49, and her husband, William, 53, recently purchased a $195,000 two-bedroom cabin in Lake Arrowhead after being advised in a real estate investment class that the mountain market was hot.
"We decided to take money out of stocks and invest in real estate," said Karyn Benjamin, whose primary home is in Ventura. "Now is a great time to buy."
Not only were Lake Arrowhead home values up 32.6% in February 2004 from February 2003, but there is more of a market for long-term rentals as tree specialists move in to help eradicate the bark beetle infestation.
The fall wildfires also have pushed up demand and rental prices, according to Tom Laurin, director of Economic and Community Development for San Bernardino County.
"The whole rental market has been affected by the fires as people look for rentals while waiting for their homes to be rebuilt. Rents are rising and demand is a problem," he said.
The Benjamins initially had hoped to lease their property to a homeowner displaced by the fires but they had few takers; their asking rent of $1,100, which covered only their mortgage, was too high for the working people who lost their homes. The Benjamins decided to rent to a worker who relocated there temporarily to cut down infested trees.
Less wear and tear on the property and not having to worry about having the rental fully booked are among the reasons the Benjamins chose this route -- as well as wanting to offer housing to those coming in to assist the community.
For now, the Benjamins are happy with their break-even strategy and hopeful that the market will continue to appreciate so they can sell later and buy additional properties.
Among baby boomers looking to buy second homes, most are doing so for personal enjoyment, according to the "2003 Profile of Homebuyers and Sellers" study conducted by the National Assn. of Realtors.
Hugh Hecker, 46, who lives in Westlake Village, also bought a second home in Lake Arrowhead -- a 1,350-square-foot, three-bedroom home for $200,000 -- to enjoy a few times a month. His monthly mortgage on the property is $800, not including property tax and maintenance costs.
"For the price of a Hawaiian vacation," he said, "I have a second home for the whole year."
Hecker, a real estate broker and contractor, said he considered Mammoth, a six-hour drive from Southern California, but chose Arrowhead instead because of proximity. Not a bad choice in light of rising gasoline prices.
"It's nice to get away," he said, "and it's only a 1 1/2-hour drive."
Plus, he foresees continued appreciation. "Anything that is attached to dirt right now is worth a fortune," Hecker said.
