Buy Luxury Homes, Article

Byline: JOHN CARROLL

In 2000, money manager David Callan bought his first summer home: a 2,800-square-foot residence in Avalon, just two blocks from the New Jersey shoreline. Originally intended as a beach getaway, today the house functions as a second home for the 36-year-old from Philadelphia. When long weekends turn into weeklong shore visits, Callan doesn't worry about being disconnected from work. "It's just morphed into this," Callan says. "In my world, it's real easy. I can work on my cell phone if need be."

Driven by rising affluence and helped by low mortgage rates and recent tax laws, the second-home market mushroomed in the 1990s, along with the economy, and continues to thrive today. Baby Boomers - ages 38 to 56, especially those nearing retirement - make up the lion's share of second-home owners today. But Gen Xers like Callan have also been crowding into this market. Rural lakes and seashores within a two-and-a-half hour drive from cities are still the most popular attractions in the market, according to an analysis of Census 2000 data by East Brunswick, .-based GeoLytics. And while prices continue to spike for the most desirable second addresses in exclusive resort towns such as Vail, Colo., or the Hamptons on Long Island, middle-class buyers are picking up less expensive properties and becoming a potent new market force in once-isolated areas such as the Finger Lakes in upstate New York or remote sections of New Hampshire.

The Second-Home Generation

The number of single-family second homes sold in 1999 rose to 377,000 - up percent from 1997 and up a whopping percent from 1995, reports the NAR. New numbers aren't expected until later this year, but anecdotal evidence supports a belief among real estate agents and housing analysts that this market hasn't quit growing. In fact, the NAR estimates that second-home sales in 2000 shot up to 415,000, which would account for 7 percent of the entire home market.

The majority of second-home owners - 79 percent - are married couples, followed by single men (8 percent), single women (8 percent) and unmarried couples (5 percent), according to the NAR. And though traditionally only the wealthy could afford a second residence, today working professionals have been joining the mix. In fact, the median income of a second-home buyer is $68,800, and the median age is 43, according to the NAR's 1999 biennial survey. That's significantly younger than the average age of all current second-home owners, which is 52, according to the Census Bureau. The NAR estimates that buyers ranging in age from 35 to 60, which includes Boomers, will drive the construction of 100,000 to 150,000 new second homes each year through 2010. And while Michael Carliner, an economist with the Washington, .-based National Association of Homebuilders, says that up-to-the-minute, hard data is often difficult to come by, he points to 1990 census figures, which revealed that every state has at least one county in which 20 percent or more of the residences are second homes. "These second homes often aren't very far from primary residences," says Carliner, who expects Census 2000 numbers to reflect the same pattern.

The people buying second homes just beyond the fringe of American cities are more likely to have families, says Patricia Breman, a senior consultant with the VALS (values and lifestyles) program, the part of the Princeton, .-based SRI Consulting Business Intelligence that examines the psychological factors that motivate consumers. "These second-home buyers are also very time-compressed," Breman says. A nearby second house allows homeowners "to steal a weekend or a long weekend for a little family getaway," she adds.

But other segments of the . population - about 10 percent - are looking for adventure when they take off for a weekend, a week or a month, says Breman. Affluent, with small families and a desire for excitement, this second group tends to purchase a second home in a distant locale. "These people require more variety and stimulation and are more apt to take a flight," Breman says. For both groups, second homes also make a sensible addition to investment portfolios.

Clark Thompson, the chief executive officer of , an online company that lists second homes in every region except the Central and Northern Plain states, agrees, adding that the investment benefits of owning a second home have not been lost on Baby Boomers. "When you look at who Boomers are, you see it's a Me generation that looks out pretty much for themselves," he says. "They're recreation minded and the first generation with double incomes. They are also a generation about to inherit billions of dollars from their savings-generation parents, so there's money there as well."

In 1997, Congress provided tax incentives that made investing in a second home an even more appealing option. That was the year changes in the tax laws created a $500,000 exemption in capital gains taxes for dual-home owners on the sale of a primary residence. For many couples, particularly those with grown kids who had finished college and were out on their own, the tax change was an opportunity to cash out of their family-size city homes and spread the wealth between a pair of dwellings.

The Lure of the Coast

Although retreats located an hour or two away from cities continue to be popular, there has been a growing interest in second-home communities in far-flung destinations, such as Park City, Utah, where Delta's hub in nearby Salt Lake City helps draw buyers from the airline's nonstop destinations. However, the largest concentrations of second homes in the . are found near large bodies of water, according to GeoLytics' analysis of Census 2000 statistics.

Not surprisingly, coast-rich Florida is a major draw for second-home buyers. In the Sunshine State, 482,994 second homes account for percent of all housing, up dramatically from percent in 1980. In Maine, the second-home market accounts for percent of all housing in the state. And in lakeside property in Michigan, the second-home market represents percent of the state's total housing market. "Everybody's so mobile, with their laptops, PalmPilots and BlackBerries," says Wendy Beville, director of research for WCI Communities, a major housing developer based in Bonita Springs, Fla. "That's a big part of why this [second-home] market has been growing."

For WCI, increasing mobility has paved the way for an invasion of second-home buyers, who account for about 50 percent of the company's sales of single- and multifamily residences in 34 developments. These buyers also account for about 60 percent of Florida's market for luxury high-rise condos, with price tags ranging from $250,000 to $10 million. These on-the-go buyers need plenty of connectivity and often want two home offices, as both husband and wife juggle the demands of their careers. As an additional perk, couples can enjoy amenities like boating, golfing and other recreational activities.

This growing appetite for condos is apparent not just in Florida but throughout the country, according to the NAR. Indeed, the wave of second-home buying is changing the residential landscape in metropolitan areas. The NAR reports that city dwellers often downsize their primary residences when they add a second home. Last year, nationwide condo sales hit 738,000, up percent from 2000, as aging Americans put their big homes on the market and downsized their living space. "They're using some of that equity [from the sale of their first home] to buy a second home," says Walter Molony, an analyst with the NAR.

Not surprisingly, a large number of players in the second-home market in Florida and nationally are among the 20 percent of the country's top earners, ages 55 to 64. These households have an average net worth of $500,000, according to the Federal Reserve Bank. However, younger professionals have also started to snatch up some of the most expensive second dwellings. And they're finding them in upscale coastal communities, such as southern New Jersey, where well-heeled doctors, lawyers, accountants and other professionals make up the bulk of second-home buyers, says Michael Powers, a real estate agent with Avalon, .-based RE/MAX Avalon-Stone Harbor. Most of these professionals are drawn to vacation homes that sell for an average of $750,000. "In a lot of instances, the family will spend the summer here," says Powers. "In some instances, the father or mother will commute back and forth to their job."

Second Homes Post-9/11

The events of Sept. 11 have only increased the desire of many Americans to find a haven away from cities that could be considered potential targets for terrorists, according to the NAR. Indeed, since the attacks, real estate agents in remote areas like Owasco Lake in upstate New York are seeing a stream of potential buyers eager to find a second home where terrorism alerts are a distant threat.

While Owasco Lake doesn't have much to offer in the way of bright lights or big cities, it does provide peace and tranquillity. Roads are narrow, two-lane arteries to the local town; traffic lights aren't needed. Those features are among the reasons East Coast suburbanites are beating a path to buy a second home in this rural haven. Professionals in their 40s, with kids in high school and a longing for the secluded towns and lonely country roads of the Finger Lakes district, have become the primary buyers for lakeside cottages, says Jeffrey Trescot, who has been selling homes to summer residents for the past four years. In the first three months of the year, they were the typical buyers of the eight lake-area homes that were sold, compared with the 19 sold in all of last year. A two-bedroom home in the area carries an average price tag of about $100,000.

However, with a limited supply of houses in rural or lakeside areas and more heated demand, prices are rising. Unlike some major urban areas, like San Francisco and the nearby Silicon Valley, where housing prices flattened or turned down during the past two years, the second-home niche has become a seller's market. "For the last 18 months, the market's seen an increase in value of about 25 percent," says Kevin McNamara, a real estate agent who pulled out of Providence, ., six years ago and landed in the rugged White Mountains of New Hampshire. "It's a hell of a change," says McNamara of the city-to-country switch, "but the quality of life is much better."

Home Sweet Home

The number of second homes in the . has risen 117 percent since 1980.

The Gold Coast

Florida is a major draw for second-home buyers: percent of all second homes in the . are located in the Sunshine State.

Rising in Value

Prices of second-homes in the . have been rising steadily.