US second home sales soar as fractional slumps

Date: Apr. 9th, 2010

Bargain house prices in the US could be at the root of an increase in vacation-home sales to Americans, in a market that has also seen sales of fractional properties almost halved over the last year.

New research from the National Association of Realtors (NAR) shows vacation-home sales in the US rose 7.9% to 553,000 in 2009. Although well off the market peak of 1,067,000 sales in 2006, this represents the first time in three years the US vacation-home market has seen a lift.

At the same time, fractional consultancy Ragatz has produced a report suggesting the value of the fractional market in the US, Canada, Caribbean and Mexico shrank by around 44% last year. Although 18 projects launched across the region, 35 closed due to lack of finance or sales.

The two pieces of research paint a startling picture of the vacation property market in the US. While the international homes industry can take heart from the fact that more Americans are buying second homes, any increase may be confined to the US whole ownership market if driven by the availability of cheap and distressed property there.

Although the median sales price for vacation homes has increased to $169,000, up from $150,000 in 2008, this “may reflect increased sales in higher priced markets, particularly in areas of Florida and California where prices became highly attractive for buyers over the past year”, according to NAR chief economist Lawrence Yun.

Too cheap to compete
Foreclosures and short-sales now account for 38% of the US market, according to NAR’s Realtors Confidence Index for January. “For anyone in the US, whether they’re in Minneapolis or Miami or New York, it’s cheaper to buy in the US than even in Mexico, so they’ve backed away from that market,” said Ray Levin, executive VP of resort consultancy Panorama World Marketing and CEO of Fractional Properties of the World.

“In warm weather areas, prices have come so far down due to short sales and foreclosures that it has also become cheaper to buy whole ownership than fractional. In Arizona, for example, where most sales are now short sales or foreclosures, you can get a condo for $80,000-$100,000 and the developers are happy to get rid of it.”

The impact on the fractional market has been exaggerated by the fact that fractional sometimes requires buyers to pay a premium, said Robert Vicino, president of Fractional Villas. “At the right price everything sells quickly. However, [some fractional] developers have taken their pro forma 2006 prices, marked them up by 30% or more, then divided by the number of shares they wish to sell and expect to do so. Buyers can quickly compute the value of a share as compared to other market options.”