Is the worst behind us?
Fortunately the luxury market has sustained the recession better than any other segment of the real estate economy. However, I feel that the worst is yet to come – specifically in the second home market. My theory is that many second homeowners never should have been in the market. Most Americans that purchased a second home did so with money stripped from the equity in their primary residences. The sales peak of the second home market was in 2005 or 2006 when many homeowners had a tremendous amount of equity in their primary residences they had purchased in 2000 or 2001. Five years later they stripped the equity out of these homes for a down payment on their lake home.
Most second home owners never had the cash needed for a down payment on a vacation home but thought their primary residence would continue to appreciate at ten percent per year so they would be fine, right? Wrong. Now here we are five years later and their 5 year balloon payment is due and they don’t have the money. They have done everything they can to fight the battles the last 3 years to hang on to both homes hoping the market would eventually come back and now the consumer is tired of throwing good money after bad as their lake home continues to decline in value so many of them are throwing in the towel. A second home is not a necessity and we all know how the recession has forced us to focus on our needs and not our wants.
So what’s next? Well, I think the second home market will continue to tank the next two years as more and more homeowners walk away from their cabins. For buyers this means there will continue to be some incredible deals in the lakeshore market and for sellers, if you are thinking of selling don’t wait! Your property will be worth less next year.
