"U.S. Sales of Vacation Homes Strong as Economy Slows (Update2)"
03/26 10:27
By Carlos Torres
Washington, March 26 (Bloomberg) -- Carol and Marc Finkelstein will be able to escape Long Island, New York's wintry blasts when their three-bedroom, ranch-style vacation home along Florida's Atlantic Coast is finished later this year.
The couple put down a deposit in December on a vacation home overlooking the 10th hole of Mizner Country Club's golf course in Delray Beach, Florida. The community -- where home prices start at $400,000 -- provides a perfect opportunity for Marc, who will retire from his job at an aerospace firm in the next five years, to practice his chip shots and for Carol, who's already retired, to work on her tennis game.
For the Finkelsteins, the rumors of the economy's demise were not enough to deter them from going after a second home. ``Certain things are just too important to pass up,'' Carol Finkelstein said. ``I am one of those eternal optimists.''
Officials at Toll Brothers Inc., the nation's largest builder of luxury homes, including the one the Finkelsteins are buying, share that optimism. ``We haven't seen a general slowdown in the second home market,'' said Joel Rassman, chief financial officer at Toll, in Huntingdon Valley, Pennsylvania.
In the week of March 12, when the Dow Jones Industrial Average registered its largest weekly percentage decline since 1989, Toll received deposits on 13 new homes on Florida's West Coast and three on the Atlantic Coast -- ``not a bad pace given what was happening in the stock market,'' Rassman said.
Still Confident
Many Americans, like the Finkelsteins, are still confident enough about their incomes and job situation to invest in real estate even as the economy cools and stock markets stagger. That helps explain why housing is staying strong.
Housing ``looks like it's the only bright spot in this gloomy economy,'' said Orawin Velz, senior economist at Fannie Mae, the No. 1 buyer of U.S. mortgages, before the report. ``People still have jobs, still have job security.''
The nation's unemployment rate is close to a three-decade low and job growth -- while cooling -- still exists. In February, the unemployment rate held at 4.2 percent, close to the 30-year low of 3.9 percent reached in October.
The demand for vacation homes has remained firm, mirroring demand for all housing. New home sales totaled 911,000 units at an annual rate in February after a 933,000 pace a month earlier, the Commerce Department said. The January and February rates were more than the 907,000 homes sold in 1999, the industry's best year.
Previously Owned Homes
Previously owned homes resold at an annual rate of 5.18 million in February, close to the 5.2 million pace a month earlier. January's rate matches the record number of homes sold in all of 1999, the National Association of Realtors said.
That's boosted shares of homebuilders even as the broader stock market declines. The Bloomberg index of homebuilders, including Toll, D.R. Horton Inc. and other builders, has increased 3 percent so far this year. It's risen more than 55 percent in the past year.
Meantime, the Dow Jones Industrial Average has fallen 12 percent, while the Nasdaq Composite Index has declined 22 percent this year.
Even so, ``the average person is still feeling wealthier than they were three of four years ago,'' Rassman said. ``They are still playing with the house's money, to use a gambling term.'' Since the end of 1996, the Dow Jones average has risen 46 percent.
Investment Alternative
In fact, consumers may be buying second homes as an investment alternative to the stock market. The percentage of the purchase price of a second homes that's financed has fallen to about 70 percent from last year's 77 percent, according to figures from American Home Mortgage Holdings Inc in New York. ``People may not be leveraging as much in stocks since they are putting more money down on second homes,'' Michael Strauss, president of American Home Mortgage Holdings.
``Every home I have ever sold I always sold at a profit,'' said Carol Finkelstein. ``Unlike stocks, I think real estate is a solid investment.''
Lower mortgage interest rates are also helping spur housing. Since reaching a 5 1/2-year peak of 8.64 percent in May, the average rate on 30-year mortgages fell to 6.89 percent last week, according to Freddie Mac, the No. 2 buyer of U.S. mortgages.
``The impact of lower interest rates is mitigating the effects of the slower economy,'' said Strauss, whose company's MortgageSelect.com division is the third largest among all online lenders.
Mortgage loan origination volume for second homes at American Home Mortgage have increased 1.7 percent so far this year, Strauss said. ``It appears that the market for vacation homes is holding up,'' Strauss said.
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