Behind a boom in second-home sales

New-home sales in the US are down. So are sales of existing homes. Yet along Florida's Gulf Coast, in tranquil towns named Siesta, Clearwater, and Crystal Bay, houses are in high demand.

"This year has been a lot stronger than we thought it was going to be," says Connie Lyke, a Realtor for Michael Saunders & Co., in Sarasota. "We had a lot of people committing to buy property, even after Sept. 11."

Ms. Lyke and her colleagues have been relatively sheltered from the economic turmoil beginning to buffet real estate agents across the US. The reason: Midcoast Florida is a hotbed for second homes, a glittering lure for prospective buyers from as far away as New York and New Mexico.

At a time when good economic news - from manufacturing to consumer confidence - is hard to come by, the continued boom in second-home sales stands out as a glaring countertrend. Second-home sales this year are expected to meet or exceed last year's all-time high of 415,000, a 45 percent increase from 1989, according to the National Association of Realtors (NAR) in Washington.

Undergirding the expansion, observers say, is a major demographic shift that promises to fuel sales for years to come: Baby boomers nearing retirement are buying and building vacation homes across the country at a record pace. And they are likely to keep it up for the next decade, even in the face of a recession.

Secondary residences have traditionally been the province of the gilded class, characterized by trophy homes and vacation compounds in places like the Hamptons, Aspen, and Nantucket. The middle class was primarily relegated to the occasional lakeside cabin, or maybe time-share access to a luxury condo.

But spurred by low mortgage rates, a flood of equity from their primary homes, and a decade of stock-market success - recent erosion notwithstanding - a new group of working professionals is redrawing the boundaries of second-home ownership. Now, agents estimate that about 10 percent of American families have the resources to buy a second home.

It's still only a modest sliver of the population, but no longer an elite one. The median income of second-home buyers is about $69,000, according to a 1999 survey by the NAR.

"Accountants, bankers, dentists, they're all behind the second-home market [that began] blossoming in the 1990s," says Gary Eldred, author of "The Complete Guide to Second Homes for Vacation, Retirement, and Investment."

"There are [also] successful ... blue-collar people with second homes and cottages," says Jack Cotton, a Realtor in Osterville, Mass.

Second-home ownership suits the baby-boomer profile. Many are planning retirement. They are far wealthier than their parents' generation and more comfortable with leisure.

They are also mobile. In many cases, they have already moved three or four times in their lives. Now they are buying second homes for weekend getaways, as winter refuges, or as full-time residences after retirement.

Overall, 43 percent of all baby boomers will move when they retire, nearly all of them out of state, according to a survey by the Dell Web Corp., a real estate and construction firm in Phoenix.

Estelle Smith, like so many of her generation nearing retirement, hopes her second home becomes a beacon for family gatherings. The Newport, R.I., Realtor recently purchased a house in Stewart, Fla. She and her husband plan to spend only a few weeks there this winter. But Ms. Smith expects that her extended family will feel the pull.

"The family, grandchildren, and children will come and spend more time with us because of our close proximity to the water," she says. "I know as a grandmother, if I live close to the water, it's the ticket."

For many boomers, who have invested significantly more time in their work and careers compared with their parents' generation, the vacation home represents a chance to reprioritize family life. It's a familiar solution, some cynics say, for a generation accustomed to seeking substantial change through big-ticket buys.

But since Sept. 11, brokers have observed an even stronger urgency to strengthen family connections.

"People care more about what their surroundings are like," says Clark Thompson, president of Escapehomes.com, a vacation-home website. "They're revaluating their lifestyle, what time they spend with their family, and where they spend it."

The "where" is increasingly far afield.

Traditional vacation spots such as the Florida coast and New England ski towns have the highest density of second homes. But shrinking supply and soaring prices are pushing new buyers into terra incognita. Brokers in places such as rural Oregon and southern Illinois report an uptick in vacation-home sales since Sept. 11, accelerating a back-to-the-land movement already visible in the market.

"Life is always a storm, but now it's a hurricane," says Mr. Cotton. "The seasonal home is your ... oasis where you can really get away."

Popular remote escapes include McCall, Idaho - population 2,000, elevation 5,000 feet. The town, which lies 100 miles north of Boise, is surrounded by natural marvels with forbidding names - like the Frank Church-River of No Return Wilderness, and Hell's Canyon on the Snake River.

Half of McCall's second-home owners are from outside Idaho. Many of them come seeking sport, recreation, and Jeremiah Johnson-like solitude, only to be chased out by a winter of reality checks.

"We have people with the best of intentions, but live through a couple of winters here and abandon it," says Michael Anderson, owner of McCall Real Estate.

Most families in the current economy cannot afford even a trial run. Some of those considering a second-home purchase have delayed plans, or scuttled them, after losing a chunk of savings in the stock-market bust. Many find they can only tackle mortgage payments on their primary residence.

And at the far end of the spectrum, record numbers of families lost their homes to foreclosure this year.

Those left with money to invest, however, are looking to real estate as a relatively secure haven. Many financial analysts recommend that families put a third of their assets in property. Second-home ownership remains a top option, as average home prices have remained stable or risen every year since 1968.

"Our customers know that real estate is still the single most solid investment that they can make," says Bob Jones, an agent at Prudential Real Estate in Wolfeboro, N.H.

Some are hoping for the same profit gains that resulted from purchases made in the 1980s. Since then, moderately priced homes in hot spots from the Mid-Atlantic to the Rocky Mountains have more than tripled in value. Brokers suggest people looking for the next boom towns investigate areas adjacent to the toniest communities.

At Siesta Key, Fla. - which lies a few miles south of Sarasota - average home values have gone up 100 percent over the past five years, to about $350,000, according to Mr. Eldred. He suggests clients seeking price appreciation in Florida explore relatively undeveloped areas nearby, like Punta Gorda or Fort Myers, which are sprinkled with houses and condos priced at about $120,000.

Rose Masci, the owner of an Italian restaurant in New York City, says the $100,000 or so that she paid for a new condo in Longboat Key, Fla., is laughably less than the prices she is accustomed to.

"I guess [it's because] I come from New York," says Ms. Masci. "To me, it's low."

For the hundreds of thousands of Americans shopping for second homes, the issues surrounding when and where to buy are more complex than just choosing among mountainside, desert, or beachfront locales.

For example, those seeking second homes must keep local tax developments in mind. New buyers in recreation areas are often surprised by ballooning property taxes.

The recent construction of colossal houses around Lake Winnipesaukee in New Hampshire, for example, will raise property taxes there significantly, according to local broker Bob Jones. Waterfront property values, in particular, could more than triple with the next assessment.

"More people will put their homes on the market because they won't be able to afford the taxes," says Mr. Jones.

Along with boom towns, areas with large deficits, floating bond issues, or an eroding infrastructure are also prime candidates for tax hikes.

Another cost second-home buyers should bear in mind: insurance. Because they are often unattended, second homes come with a special set of liabilities, such as exposure to hurricanes or snow storms, and an increased risk of theft.

Potential buyers can contact the state's insurance office to see whether major companies are cutting services or petitioning for rate hikes in particular areas, says Gary Eldred, author of "The Complete Guide to Second Homes for Vacation, Retirement, and Investment."

Insurance, of course, does not cover basic home-improvement costs, the scale of which is often underestimated on a vacation property. Many buyers hire home inspectors to determine the overall condition of the house, but neglect to gauge the level of landscaping work and to factor in the cost of upkeep they may be accustomed to taking care of themselves.

Others who buy in rural locales forget that construction costs can be higher in these areas where the number of contractors is often limited. The need to truck in building materials from afar can also drive up costs.

And some new buyers, real estate experts point out, simply run the risk of being bored silly once tranquility gets old. Proximity to college towns may be one antidote, some agents say.

Real estate experts also advocate wading in - renting a condo, rather than buying any property, for example - in a target town. This way, buyers have time to observe the pattern of property and insurance costs, learn about local contractors, and see how quickly travel costs back home add up.

For those hoping to eventually use their second homes as primary residences - perhaps upon retirement - tax law often guides the timing on the sale of a primary residence.

Tax laws exempt dual homeowners from up to $500,000 in capital-gains taxes on the sale of a primary residence as long as they have lived there for no less than two of the previous five years.