Part 1: Second-Home Market: Booming
A generational wave of new buyers is changing where and why customers buy second homes. In this issue we explore the second-home transformation. Next month we’ll help you catch the wave and earn your share of this booming market.

When Chip Lubeck started selling real estate on Singer Island in 1988, he worked with your typical older snowbird. “Northeasterners would buy a vacation home, stay one to four months in the winter, then close up the home until next year,” says Lubeck broker/owner of Lubeck Real Estate on Singer Island near Palm Beach. “What used to sell for $150,000 to $160,000 now sells for $500,000 or more, and the typical older buyer can’t afford it,” he says. “There’s a new, younger jet-set crowd, and they’re paying cash for $450,000 to $650,000 homes that aren’t even on the water. In Singer Island, if you want a waterfront home, you’re paying upwards of $1 million,” he says.

The Boom
While traditional snowbird retirees continue to buy from Lubeck and other real estate professionals around the state, the shift to younger buyers is creating a ground swell in the volume of second home sales. The surge rises from the confluence of several key factors: low mortgage rates; a 1997 tax-law change that allowed sellers to exclude from taxation up to $500,000 in capital gains (for a couple who live in that home for two out of the five years preceding the sale); a wealthier retiree; and uncertainty in the stock market.
“As the baby boomers begin to age, they’re using the wealth built by their parents to invest in second homes,” says industry consultant John Tuccillo. “This is compounded by the April 2000 stock market downtrend and the tech bubble bursting. Money has flooded into housing ever since,” he says.
According to the 2003 National Association of Realtors® (NAR) Profile of Home Buyers and Sellers, during the first quarter of 2002, some 15 percent of homebuyers either were purchasing a second home, already owned a second home or were buying a new primary residence and keeping their existing property as a second home.

Who’s Buying?
“There’s been a shift in the last 10 years,” says Tom Bringardner, general manager of Premier Properties in Naples. “Many times these buyers are younger. They’re current corporate executives who are pre-retirement. They want to establish themselves in retirement and plan for their future. Buyers in our area are baby boomers who are the beneficiaries of wealth transfer. They’re entrepreneurs who are operating their own companies or have sold to a larger public company,” says Bringardner.
Baby boomers — those born between 1946 and 1964 — are overtaking the second-home market and pushing it in new directions. “Baby boomers have exerted their will in virtually all economic and social aspects since 1950, and they’ll continue to exert that as we go forward,” says Tuccillo. “Right now, with the peak [birth] year of the baby boom having been 1957, there are more 48-year-olds than there are any single other age group [in the United States] until next year, when there’ll be more 49-year-olds. And 48-year-olds are going through the best productivity years they’ve ever had — the best earning years and the best spending years. These people are moving into the best house they’re going to own, and into more than one of them.”
NAR’s 2003 study appears to confirm the presence of the boomer generation in the second-home market. It showed that typical second-home buyers were 47 years old and that roughly 66 percent were married and had a household income of $85,900 in 2002. That’s a big change from the findings of the 2002 NAR Profile of Second Home Owners that showed the typical second-home owner being 61 years old with a household income of $76,000.
“We’re seeing younger people buying below their income just to be in the area,” says Jacqueline (Jackie) Ross, CRS, and a Realtor with Prudential Network Realty in Ponte Vedra Beach. “They’re looking for good appreciation as well as a place to vacation. We have a lot of condo conversions that they buy, and because they can handle the investment financially, they’re not crazy about renting them out,” says Ross, who reports that 40 to 45 percent of her buyers are buying vacation homes. She finds that more and more of buyers are between ages 35 and 50.

Where Buyers Come From
Although Florida tends to draw buyers from all over the country, according to a study by the University of Florida’s Bureau of Economic and Business Research, most second-home buyers are coming from New York, Michigan, Ohio, Pennsylvania, Canada, Illinois, Georgia, Massachusetts, New Jersey and California.
“Here in North Florida, we see a lot of buyers from Alabama, Houston, Dallas, New Orleans, Nashville and Atlanta,” says Harry Millsaps, an associate with Coastal Properties of Northwest Florida.
Judy Lukens, CRS, and a sales associate with Coldwell Banker in Delray Beach, says that most of her buyers are from the Northeast. “Although I’ve worked with international buyers and people from other states,” she says.
For Lubeck, most buyers are coming from the Northeast as well as the Midwest. “I just sold a property to a retiring couple from New Jersey. They were vacation rental clients of mine and stayed for two weeks each year for the past three years. They fell in love with a house I showed them and ended up writing a check on the spot,” he says.
“My target markets are Alabama, Tennessee, Louisiana, Mississippi and Texas,” says Anita Williams, a sales associate with Dale Peterson Real Estate in Destin. “Many people from Ohio and New York are also coming down once or twice a year and buying. We get a lot of Northerners who buy and put their properties with a property management firm during the months they won’t use the home.” Williams says, however, that rental rates aren’t keeping up with home appreciation so people aren’t making a lot of money on the rental side.

What’s Selling?
Gone are the days of beach cottages and two-bedroom condos.
“The baby boomer is a different purchaser,” says Lukens. Three years ago, Lukens sold a property to an attorney from up north who wanted to buy a home where he could come for long weekends and vacations. “This home would eventually become his full-time home. He bought a waterfront home in the $1 million range,” she says. It was such a good investment that he sold that home and, says Lukens, “We just closed on a $3.5 million home. When you’re talking about second homes, they’re not the two-bedroom bungalows of the past.”
Singer Island’s Lubeck agrees. “Beachfront homes are typically two-bedroom, two-bathroom. Now that the baby boomers are in the market they want bigger places. The next phase on our island is buying homes, tearing them down and rebuilding. Buyers realize the waterfront lots are more valuable than the homes on them.
“We’ve seen the market go from buyers using [their homes] in the winter and renting them out in the summer to buyers renting their homes in the winter months when they could get higher rental rates. Now, people are buying and staying for long weekends, winter, summer, whenever they want a break from home,” says Lubeck.
“We’re talking about a whole range [of purposes] for people who are in Florida buying second homes,” says Tuccillo. “Some are using them as getaways, some for post-retirement homes, but the demographic is shifting and changing. Many communities are getting younger.”
NAR’s 2003 study shows 58 percent of second-home buyers bought a detached single-family home in the first quarter of 2002, but only 21 percent bought in a resort, recreation or rural area; 66 percent were in an urban or suburban area.
“The concentration of second-home purchases in metropolitan areas during the first quarter is the reverse of what we see on an annual basis, where most are purchased in resort, recreation or rural areas,” says David Lereah, NAR’s chief economist. “This may be a weather effect, but there appears to be a seasonal trend in the location of second-home purchases. In addition, buyers generally have shown a greater interest in investment properties over the last few years.”
Investment Boom
Whether they’re buying beachfront property or homes in gated communities, many are using these homes as investments as well as retreats.
In Rosemary Beach and south Walton, Millsaps says, “The buyers are definitely getting younger, and a vast amount of sales are cash deals.” Millsaps targets the professionals such as attorneys, doctors, small-business owners and accountants who buy preconstruction and many times sell the property for a profit before it’s even completed. “About two years ago, I sold a house in Watercolor (a state-of-the-art master-planned community) for a little over $1 million. Before the builder could get the house completed, it sold again, and in a period of 18 months, it appreciated more than $18,000,” says Millsaps. “I’ve got clients who are treating lots like 12-month CDs (certificates of deposit),” he says. He finds that many of the same people who buy a second home for vacations also buy for investment.
Customers County by County
The following IRS tax return statistics help estimate the size of Florida’s inbound residential market — not just second homes purchases — and offer a way to predict where the next buyers might come from.

And, they aren’t waiting as long to buy. “I learned from the Worldwide Recreation and Resort Sales Council that the average second-home buyer makes four to five visits before buying, and they buy [a second or vacation home] within five hours of their primary residence,” says Ross, who recently earned her recreation and resort specialist designation. “That could be five hours by train, car or air,” she adds. Now Ross finds that buyers are making purchases more quickly. “I have someone who contacted me via the Internet, came for one visit, looked at homes for two hours and put a contract on a property right away,” says Ross. In the past, Ross says, that buyer would have visited at least two more times before taking the plunge and buying.
And, they’re not looking only for waterfront properties or those in resort locations. “Some [people] are priced out of beachfront properties, so they look for a secure, gated community with great landscaping, golf course, access to a beach or country club and within 20 minutes to ocean,” says Ross.

Opportunity Knocks
Baby boomers are still in their peak earning years and the leading ages of their generation are approaching retirement, according to NAR’s 2004 Second Home update. As they continue to have the financial ability to buy second homes as vacation property, investment opportunities or just as retirement retreats, those boomers will continue to drive the market for second homes.
“Realtors must be aggressive when looking for hidden pockets of opportunity,” says Tuccillo. “Look for value, and there are still places like Charlotte Harbor where you have very inexpensive land that’s ready [for an influx of second-home buyers],” he says.
“Right now, the business for vacation homes and investment property is very brisk, and prices are rising with a low inventory of properties available in many areas,” says NAR’s Lereah. “Demographics will drive this market over the next decade with baby boomers in the peak years for buying a second home.”

Editor’s note: Are you reaching out in the right ways and prepared with the right skills and knowledge to win buyers in the second-home market? Next month, Florida Realtor will offer tips for how to earn a share of this growing, dynamic market.