Second Home Market Slumps

From the NY Times:

Hot Market for Second Homes Hits Slump

The brand new 6,000-square-foot vacation home, backing on a boat dock on Moriches Bay, has been on the market for more than a year. After plenty of showings, but no offers, the investor who built the house recently cut the price twice, by a total of $600,000, to $4 million.

It has still not been sold. To be sure, the price reductions have created more interest, according to the agent representing the owner, and he now hopes that it will be sold right after Labor Day, a prime season for home transactions in the Hamptons.
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It is not just the most expensive vacation homes that are going begging. The once-bustling deal making in a wide variety of popular locations for second homes — areas like Florida, the Jersey Shore and Lake Tahoe, as well as the high-price playground on the East End of Long Island — has slowed markedly in recent months.

As the overall housing market weakens, the interest in buying vacation homes, from the most modest condominiums on up, appears to be falling faster. Unlike most metropolitan areas — where underlying demand and the normal turnover in primary homes as a result of job moves, new households and family changes provide a more solid floor under prices — the second-home market relies on a different set of motivations that tends to exaggerate booms and busts.
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In 2004, the latest year for which data is available, Ocean City, N.J., at 73 percent, headed the list of metropolitan areas with high shares of second homes. From 2002 to 2005, home prices in the area, which includes Cape May, rose at an average annual rate of 17 percent, compared with 10 percent for the nation as a whole and 14 percent for New Jersey.

“These have been the most juiced-up markets,” said Mark Zandi, chief economist at Economy.com.

But this spring and summer, median home prices in the Ocean City area have fallen by 10 to 15 percent from a year earlier. Sales have slowed and more houses are sitting on the market, according to Nicholas J. Marotta, president of the Ocean City Board of Realtors.

He blames speculators for rapidly inflating and then depressing the market by trading in condominiums and oceanfront homes that they bought with low-interest loans requiring only small down payments.