The window may be closing on some of the greatest bargains ever in vacation real estate, according to the latest research into the shared-ownership real estate business.
After years of declining sales and prices, developers of fractional interest properties, private residence clubs and destination clubs are seeing some light at the end of the tunnel, a study by Ragatz Associates found.
The vacation home and second home sectors are always the last to recover from a recession, and the same holds true this time around. But even though the business is still mired in a downturn, developers are starting to raise their prices.
"It seems like the bleeding has stopped," said researcher Richard Ragatz, who found that the average price per share rose 4 percent over last 12 months, from $159,000 to $166,000. But that's still way below the peak of $237,000 per share in 2007, when the resort market went belly-up.
So even at the slightly higher price, shares in these highly amenitized shared-ownership vacation properties are 32 percent cheaper now than they were seven years ago.
On an average price per week, prices are up 22 percent from last year, from $28,000 to $34,500. But they are still 26 percent less expensive than in 2007.
Ragatz also found that there are no shared-ownership properties in presale mode, meaning that nothing new is on the market or being contemplated by developers at this time. Thus, when what's available now is finally snapped up, there will be no new supply to meet demand and prices should shoot back up.
Shared ownership "is still a great concept," and there are "some recent signs of a turnaround," the Eugene, Ore., researcher said. "But we're not fully back yet, and I expect no major breakthroughs in 2014 or 2015."
Ragatz's research covers the upper echelons of the shared-ownership business.
Fractionals and private clubs are similar in that they both typically sell deeded ownership in shares of vacation homes, ranging from 1/15th share -- three weeks of annual use -- to quarter shares, with three months of annual use.
But the two components vary in terms of price, quality and the degree of services and amenities. For his annual report, now in its 14th year, Ragatz arbitrarily assumes that shares selling for more than $1,000 per square foot fall into the fractional interest category, while those selling above that benchmark are private residence clubs.
A destination club, on the other hand, typically sells 30-year memberships on a non-equity basis. While some clubs are equity-based, they all are part of wider networks of holiday properties in multiple locations. The right-to-use concept also is characterized by a refund policy that gives members their money back when they leave the club.
Time-shares, which generally market less expensive units in increments as short as a single week, have seen their sales improve slightly on a year-over-year basis since 2009. And the American Resort Developers Association is "cautiously optimistic" that the trend will continue.
For his latest report, Ragatz found far fewer active projects than in previous years. There are currently 75 fractional and private clubs in an active sales mode, compared to 153 in 2007. And there are only seven destination clubs now selling, vs. 21 seven years ago.
Only two private clubs came to market last year, while one sold out, seven stopped selling, seven others converted to time-share, six re-started and one converted to full ownership. In addition, several lowered their prices to the point where, by the researcher's definition, they became fractionals.
Overall, the resort properties covered in the report garnered $517 million in sales last year. That's up from $497 million in 2012. But in 2007, sales totaled $2.3 billion. (The study covers the United States, Canada, Mexico and the Caribbean, but not Europe.)
By segment, sales of fractionals are down 83 percent from their peak, sales of private clubs are off 85 percent and sales of destination clubs are down 58 percent.
The factors holding back the business are some of the very same ones that squeeze the residential market -- economic uncertainty, lack of equity in peoples' homes, the glut of inventory on the market, increasing competition from rentals, excessive pricing and high maintenance fees.
But Ragatz found that the economic climate is improving, home equity is rising once again, inventories are declining and developers are becoming more realistic when it comes to their prices and maintenance fees.
At the same time, there is still a lack of financing. There's also "serious" competition from rentals and rental clubs, and would-be buyers are concerned what people will think of them when they splurge on any form of shared ownership.
On that last point, the size of shares -- read, weeks -- has "decreased significantly" to broaden the market and sell just enough weeks that people can actually use. In other words, there is less conspicuous consumption. "There is a continued and significant trends toward smaller shares," he said.
As in previous studies, Ragatz found at least nine different sizes of shares being sold. But to lower prices in accord with declining sales, there was a tendancy toward smaller shares, fewer bedrooms and smaller units.
On the positive side, the researcher also found an increased willingness on the part of developers to help owners rent their unused weeks, exchange their weeks for time in other properties, and offer an in-house resale program should the owner decide he wants out.