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[whitespace] Profile on vacation home ownership changes

Los Gatos--The fuel driving the Silicon Valley real estate market--Internet money--is now heating up second-home markets, such as Carmel, Monterey, Lake Tahoe and the Gold Country. Local residents looking for a place to get away for a weekend are snapping up condominiums, cottages, cabins and an estate here and there for their own private refuge.

The National Association of Realtors' (NAR) study entitled "Profile of Home Buyers and Sellers" reported that there were 377,000 single-family, second-home sales in 1999, up 9.3 percent from 345,000 sales in 1998. More significantly, sales have risen 27.4 percent since 1995 when there were 296,000 second-home sales.

According to the profile, the increase in sales is attributed to tax-law changes, effective in 1997, which allows most sellers to exclude up to $500,000 in capital gains from taxation. This essentially did away with the capital gains tax penalty for most buyers wishing to trade-down to a smaller primary residence, and also use some of their equity to purchase a second home.

Research by NAR also shows that the median age of second-home buyers in 1999 was 43, and the median income nationwide was $68,800.

"These figures are right in line with the leading edge of the baby boom generation that we have been seeing in the Carmel/Monterey region for the last two years," said Rita Lewis, managing broker and vice president, Coldwell Banker, Monterey Bay region. "During 1999 over 50 percent of the homes Coldwell Banker sold as second homes in the area were all-cash transactions. The prices ranged from $800,000 to $17.5 million and the average age of our buyer was 40 years old."

The Carmel-Monterey coastline attracts both young professionals looking for a weekend getaway from the Valley stress and Carmel's original demographic of retirement-age couples. With only a one-hour drive from San Jose, Lewis adds that Carmel offers dotcommers a quick place to retreat.

According to the Big Sur Land and Trust, a nonprofit organization based in Carmel, Monterey County is the number one region in the nation for second and third homes. Recent estimates show that 60 percent of Carmel is owned by nonresidents.

Another getaway location to feel the effects of change is the Truckee-Lake Tahoe region. Truckee, once a small lunch stop on a vacationer's route to Tahoe, saw real estate prices increase by 25 percent between 1998 and 1999, according to the Sierra Business Council. Since that time, the prices have nearly doubled in some neighborhoods where multiple offers and all-cash transactions mirror the Bay Area market.

A recent Squaw Valley development, the Village at Squaw Valley, had more than 450 buyers lined up to purchase condos planned for the new slopeside village. Groundbreaking began in May but the first home will not be available until December 2001, yet in a six-hour period buyers paid a collective $73 million for the project's 139-unit first phase.

"The people who bought in this development were primarily young, affluent Silicon Valley entrepreneurs," said Tom Jacobson, vice president, Intrawest, a Canadian resort developer. "In fact, with 35 percent of the buyers being under 39 this was the youngest market we have seen yet."

Intrawest plans on constructing four phases of the development with the first phase beginning in Spring 2001. The condos which range in size from a 500-square foot, one bedroom unit to a 1200 square foot, 3-bedroom home sold for a low of $300,000 and a high of $1.2 million. Eighty-five percent of the buyers were from the Silicon Valley.

"The condos priced out at $650 a square foot which is about five times the price of previous North Tahoe homes," added Jacobson."Real estate prices in Lake Tahoe are being driven to some degree by the same factors that the Bay Area has experienced--limited available land, high demand and lots of new wealth."

According to Kelly Smith, Century 21 Tahoe North Realtors, the market was so bad a few years ago that real estate agents couldn't give away a home in Squaw Valley, but the Resort at Squaw Creek development helped change the area from a ski-only location to a year-round resort which attracted more buyers.

NAR estimates that homes purchased for recreational use account for half of all second homes, with most of the rest of held as investment property. The U.S. Census Bureau estimates there are about six million second homes, including condominiums and timeshares. Of this total, NAR projects there are 3.1 million recreational properties, some of which are rented out for part of the year.

According to the Silicon Valley Association of Realtors' conventional wisdom of purchasing vacation homes in recent years appears to be changing. The general advice was to buy for personal lifestyle considerations more than for investment, and to plan to hold that property for many years, because prices of recreational property did not appreciate very much and they were more difficult to sell.

As in primary residential property, location is the biggest consideration. A significant factor today is that many of the most desirable locations have already been developed, meaning greater demand will result in faster price increases and shorter selling cycles.

In addition, in the past, financing used to be more limited, with the best loan terms available from local or regional lenders familiar with the area where the property is located. However, more national lenders are willing to finance recreational property now with more competitive terms, some comparable to loans on primary residences.

"Not everyone is seeking a name-destination resort," commented Penny Pompei, executive vice president, Silicon Valley Association of Realtors. "Many people prefer quiet, less well-known and more affordable properties fairly close to home which is why we see second homes in places like Santa Cruz, Capitola and the Gold Country. Most vacation homeowners prefer to be within a relatively short drive, i.e., less than a day."

Recreational property remains mostly a lifestyle choice, according to NAR's study. Some owners offset costs by renting the property for parts of the year; however, in most cases, the rent only offsets a portion of the monthly carrying costs. Unless the property is highly desirable and well located in a very popular destination resort, buyers are advised to not count on rental income to help pay for the property.

"Anyone interested in buying a vacation home should be intimately familiar with the area, its amenities and resources, as well as travel time and other long-term considerations," added Pompei. "We suggest that consumers rent a home in the area they are considering and get to know it first hand."
Sue Stone

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Web extra to the September 7-13, 2000 issue of Metro.

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