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Amid stock gloom, many see gleam in real estate
By: Mary Umberger
Chicago Tribune, July 5, 2002
As usual, it's the Boomers.
Given the blame (or credit) for creating a demand for everything from SUVs
to Botox, the Baby Boom generation also has been tabbed for fueling the
recent real estate rampage and driving the rate of home ownership to
record highs.
Now housing analysts say that these Boomers, spurred by alluring
mortgage-interest rates, stock-market jitters and a yearning for a place
to unwind, are poised to do the same thing for vacation homes.
The number of second homes in the U.S. has zoomed from 1.7 million in 1980
to 4.1 million in 2001, according to census figures and the National
Association of Realtors. And that may be just a start: By 2010, about 10
million Americans will own two or more homes, according to American
Demographics magazine.
"I'm expecting a tremendous surge in the second-home market,"
said John Burns, a real estate industry consultant in Irvine, Calif.
"The typical second-home buyer is 53 years old, and [with the aging
of the population], those numbers are going to grow significantly over the
next 10 to 15 years."
Burns says that this group has either the cash or the equity in their own
homes to enable the purchases. He credits 1997 tax laws that exempt the
first $500,000 from the sale of their primary residences from
capital-gains taxes for part of the trend. Housing analysts say the tax
change has allowed many retirees to trade down to more modest principal
residences and also buy vacation homes.
According to Burns, the number of people in their 50s in the Chicago
metropolitan area put the region in the top 15 U.S.markets for second-home
growth through 2010. Nationally, the National Association of Home Builders
projects that 100,000 to 150,000 second homes will be built annually
through 2010.
Even so, real estate agents say that, this summer at least, Chicago-area
buyers aren't exactly knocking down their doors to buy vacation homes.
Numerous Midwest agents describe the current vacation-home market as
anywhere from "good" to "a little bit soft."
"I'd say it's pretty average," according to Warren Lundquist, an
agent in Sister Bay in Door County, Wis., an area that attracts
leisure-driven Chicagoans. "We've had a number of good years in a row
here, and this isn't any exception. Prices have remained relatively
steady, maybe with a 5 percent increase over last year."
But over the long term, the prognosticators see major growth, not only
because of demographics, but also because of economics.
First, there are the record-low mortgage rates, which are not expected to
rise significantly anytime soon. Then there is widespread disillusionment
with the stock market. The result is that real estate, in general, is
doubly attractive for some.
"Banks basically are having a sale on money right now," said
Michael, an Arlington Heights resident who closed on a Wisconsin vacation
home last week, about two years ahead of the home-buying timetable that he
had envisioned.
"My wife and I were contributing to our 401(k) retirement plan, and
we got sick and tired of seeing it decline," because of the stock
market's performance, said the buyer, who didn't want his last name used
because he feared colleagues would know too much about his finances.
"We had been contributing to [the 401(k) plan] fully for a long time
and seeing no results. . . . I have a hard time believing that this is one
investment that I won't see appreciate."
They purchased a two-bedroom home on Whitewater Lake in Walworth County,
Wis., an area best known for nearby Lake Geneva, with its storied
lakefront mansions.
Urban-proximate
Walworth is what demographers such as Loyola University professor Kenneth
Johnson call "urban-proximate counties"-- close enough to be
reachable by city-dwellers and suburbanites, but not so close as to make
them urban. Although the forecasters still see the Sun Belt as a
second-home draw, the "urban proximates," which are a couple of
hours by car, are key to the projected growth of the market.
"Name any big city, and there's an area like this," Johnson
said. Other Chicago-area "urban proximates" are the so-called
Harbor Country towns of northern Indiana and southwest Michigan, and the
Chain of Lakes area in northern Illinois and southern Wisconsin--and they
have the vacation-home markets to prove it.
Johnson sees the demand being driven by working couples, many of whom
stretch the definition of "weekend" by using technology to
telecommute.
Victoria Poindexter hopes to be able to work a bit from a bedroom in the
house that her family purchased in May in Harbert, Mich.
"I put in a second phone line and a fax," the Chicago investment
banker said. "I hope to spend a lot of Fridays up there." She
also hopes to spend time there in winter.
Real estate agents say Poindexter is typical of other vacation home
buyers. "They start out with their two-day weekend, and then they
start coming Friday afternoon and leaving Monday afternoon," said
Kristina Brychta-Alden, a real estate agent in Harbert, in Harbor Country.
"We have a lot of clients looking for a spare bedroom for an
office."
Because they are spending more time there, buyers are demanding more from
the houses themselves. Poindexter said her family never considered buying
a traditional rustic cottage.
"We don't have any time or interest in home projects,"
Poindexter said. The home they purchased, about half a block from Lake
Michigan, is about 30 years old and had been thoroughly remodeled.
"You don't see much of the funky beach house anymore," Brychta-Alden
said of the building wave in her area. "Second homes are getting much
more sophisticated. They have granite countertops and marble baths. Even
the 1,200-square-foot homes have vaulted ceilings and oak floors and
limestone."
Which comes at a price.
Lakefront property
"Vacant land on the lake here starts at $1 million," according
to Mitch Serrano, an agent in New Buffalo, Mich., one of the most popular
towns in Harbor Country. "Lakefront property has increased
dramatically in the past year. Some properties here have increased by $1
million just in one year.
The price, typically in any of these markets, is driven by access to
water, which has caused some buyers to rewrite their shopping lists. Now,
small farms have developed a following, Brychta-Alden says.
"They rent the acreage to a local farmer, and surround themselves
with 10, 20 or 30 private acres--Grandma's house."
"It's kind of sporadic," said Brychta-Alden. "We do have a
lot of people looking. But people are more cautious than they were a year
ago, since the change in the stock market. I think they're taking a lot
more into consideration before buying."
Michael, the new resident of Whitewater Lake, thinks he's hit the market
at an ideal time. "When the economy comes zooming back, everyone and
their brother is going to want to have some sort of lake home. To me, it's
a long-term investment.
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