The Housing Scene

Shared Vacation Homes Falter

Despite glowing annual research from the National Association of Realtors, all is not well in Vacation Home Land.

Vacation home sales recently "boomed" to well above their previous peak, NAR boasted. But vacation homes come in all shapes and sizes: from owning the whole enchilada to as little as one week in the place annually. And seven years after the recession began, according to another report, shared-ownership resort real estate continues to suffer mightily.

"Stagnation" is the word used by researcher Richard Ragatz to describe the business.

Shared-ownership real estate includes fractional interest projects, private residence clubs and destination clubs, in which buyers own just a piece of a higher-end property and share the units and amenities with other owners. The survey does not include time shares, which are typically less expensive properties.

Only 62 shared-ownership properties in all of North America -- the U.S., Canada and Mexico -- actually made sales last year. That's down from 75 in 2013 and 153 in 2007 when the recession began, according to the Ragatz survey, which is thought to be the most complete.

Moreover, only three new projects were started while seven shut down completely, one converted to a destination club and one switched to whole ownership. Seven sold out last year and four re-started sales.

"More and more consumers are becoming disenchanted with the burden of ownership," the researcher said. "They're looking more toward rentals and membership (clubs). It's going to be interesting to see what happens over the next few years as prices continue to rise and as more wealth becomes available."

The report cites several factors that have negatively impacted the market: long-term economic uncertainty, a nearly complete lack of available financing, a lack of marketing dollars, and an excess supply of whole-ownership vacation homes with decreasing prices and increased competition from rentals and rental clubs.

Many of those factors contributed to booming whole-ownership sales, in which you buy the entire house, townhouse or apartment, lock, stock and upkeep. An estimated 1.13 million vacation homes changed hands last year, NAR says -- the most since it began counting vacation home sales in 2003, and roughly 21 percent of all real estate transaction in 2014.

Lawrence Yun, NAR's chief economist, called the growth in vacation home sales "astonishing," noting that they were nearly double what they were in the previous two years.

According to NAR, 45 percent of the vacation units sold last year were distressed properties, a home either in foreclosure or a short sale in which the sales price was less than what the seller owed on his mortgage.

Given these kinds of numbers, you might wonder what people do with all those properties.

According to yet another survey, this one by popular vacation home rental site HomeAway, nearly 1 in 4 buyers intend to rent out their properties from the get-go. But even if they didn't intend to, almost 9 out of 10 end up renting out their newly acquired vacation homes within their first year of ownership.

While the primary purpose of a vacation home for most people is as a personal or family retreat, owners are learning they can monetize their assets and cover 75 percent or more of their mortgage if they rent for just 18 weeks, HomeAway said.

That leaves plenty of time for personal use. But it should also be pointed out that those 18 rental weeks usually cover the entire "high season" for which people purchased their retreats in the first place.

NAR found that a third of the vacation houses purchased last year are intended for family use, and 19 percent of the buyers plan to convert their units into their primary homes sometime in the future.

Still, said HomeAway spokesperson Christina Song, renting is "pretty overwhelming, even if it is not the primary reason for buying. ... A lot of people buy for personal use," then end up renting out the home to cover their costs, she said.

And those costs can be considerable. NAR found that the average price is down 11.1 percent to $150,000 for a condo by the seashore or a cabin in the woods. But much of that is driven by people snapping up distressed properties.

Shared properties tend to be more expensive because they are laden with amenities not even offered in whole-ownership communities. Sales in fractional interest properties averaged $20,000 a week, according to the Ragatz study, while a week in a private residence club averaged a mere $67,700.

At the same time, the average rental rate charged by HomeAway clients is $217 per night ($1,519 per week). The site also reports that clients average $28,000 annually in rental income, enough to cover 75 percent of the typical mortgage.

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