Have you thought about owning or buying a vacation property. Would you like a place to take the family to on a lake near the beach or up in the mountains. I have, and I know a lot of our listeners have also. Let's bring in Jonathan Miller, a CEO and founder of Miller Samuel, a highly rated data analytics and research firm covering the housing market. He has written a number of pieces on vacation homes, second property, luxury properties,
and what's happening in that market. So Jonathan, let's just talk a little bit about what's going on in the second home market, whether it's the luxury market or not. Tell us a little bit about what's going on out there.
Well, you know, we had coming out of the pandemic, we probably had the biggest second home purchase boom in history as people were coming, you know, sort of re engaging with the outdoors again after the pandemic. And then in the last couple of years we've actually seen a
big drop off in second home purchases. Now it's I would describe it as more normalized, where it's more consistent with seven or eight years ago before the pandemic, and comparisons against the last few years are probably unfair to the market.
So what's going on then with the supply of homes for sale? Obviously twenty twenty one, twenty two, a lot of supply got sucked up. As a percentage of average home numbers for sale, that number seems to have plummeted. Has that normalized?
Yet it depends on location.
The way I think of it is, we all are seeing a big uptick in supply, but it depends on where the uptick began. You know, did it become begin at a record load number and now it's you know, we have some markets, a lot of markets that are still behind pre pandemic inventory levels, but we have a growing number of markets that are sort of catching up or exceeding.
But it is very location specific.
The one let me gues let me take a few guesses. I'm going to guess that we're seeing a big uptick in supply in southern Florida and not as much supply. And let's say the Hampton's or Jersey Shore off of New York, or Newport or any of the vacation destinations off of Boston. That's just my instinct. I'm curious what your data shows.
It shows exactly that you know. And another way to really look at this simplistically is I think of Sunbown versus everybody else, a sunbelt. You know, it's new product can be built faster, you know, the whole moving away, you know, to something cheaper. You know, a cheaper housing market, which tends to be to the south was sort of overdone, and now there's a big difference. Even within South Florida.
You look at Miami Dade is really seeing a lot of supply come in significant about fifty percent over the last year up.
But then two.
Counties to the north, go Broward and then go Palm Beach County. Palm Beach County is seeing declining inventory. So I don't think there's a correlation with the further south you go, the more inventory is rising.
But that seems to be what's actually happening in Florida.
Palm Beach kind of reminds me of East Hampton or seg Harbor or something like that. So it's more, you know, East end of Long Island. Like, is it fair to say that a lot of parts of places like South Florida just to become victims of their own success? There was such an exodus from California to Texas, from New York, New Jersey, Connecticut to Florida, that it just seemed to overwhelm the infrastructure and the supply. Fair statement, that's a
very fair statement. And then throwing hurricanes on the Gulf side. The Gulf side with you know, has has seen a much faster rise in supply than the ocean side of Florida. And I wonder too if that's part of you know, Canadians tend to gravitate towards the Gulf side, and you know, with the trade war that we're having right now, maybe that's playing into it as well. So we were looking in of all times, January twenty twenty on the Gulf side in places like Saint Petersburg for a winter home,
and then the pandemic shut everything. And when everything reopened, I wasn't as surprised about the big increase in home prices as I was the giant increase in things like insurance taxes, HOA fees. It got to the point, wait, if I'm going to spend sixty or eighty or one hundred thousand dollars a year on everything around the house, not actually buying the house, Hey, that pays for a lot of nice vacations. Maybe I don't need to own a place in Florida. I could just visit how significant
is the cost structure change in southern Florida? What's going on there? And where else are we seeing that sort of spike in home ownership costs?
Right?
So, you know when in the old days, when you bought a house and you were worried about the interest rate and the price of the house, uh, the the costs of home ownership. Beyond that, we're sort of a rounding area. You weren't thinking about the cost of insurance, real estate taxes. And what we've been seeing in the last several years is a big jump in not not
just the cost, but actually getting coverage in insurance. One thing, you know, when we think about other parts of the country that are sort of struggling, I would I would characterize.
This as more of a national condition. Now.
California as wildfires, the Midwest is tornadoes, and the southeast and eastern seaboard is an inland too is flooding. So there just seems to be this sort of steady rising tide, no pun intended, but of it. And actually the one thing that you know, in all my research about this over the last couple of years, the most expensive uh uh insurance cost relative to home prices is the Midwest.
It's not Florida, it's not uh you know, wildfows in California, because housing is so much less expensive in the Midwest.
But it's a bigger chunk.
It's a bigger, bigger liability or so.
We were just in Chicago a week or two ago, and what was so interesting. So I'm in Chicago over year for Thanksgiving, for forever. I always find the Midwest and Chicago in particular, a smaller, more manageable, more rational, much more affordable version of New York City. But a lot of people we spoke to there in Chicago, in Detroit, in Milwaukee, all the Great Lakes, like what we talk about on the East Coast with beach property, Hampton's Fire Islands,
Jersey Shore, Delaware, go down the whole list. They all talk about some people have homes on Lake Michigan, or if you're coming from Grand Lake Streams, there's just a run of vacation properties and the prices seem almost reasonable. What are you seeing in the Midwest market for real estate prices?
So it's always really dangerous to sort of make a living in the East and then go to the Midwest and look at housing prices, and it's almost entertainment because the affordability, you know, to buy a vacation home in say, Wisconsin, north of Chicago where I used to live, you know, is you know, a reasonable but not to locals, right, And my head.
Tray in the office after this hole we had a big event in Chicago. He's like, oh my god, I can't believe how reasonable everything is here, Like you and your fiance should move there. The only catches we have to cut your salary forty percent because that's the local wage.
So clearly home prices track local median income. I don't remember if it was your research note that talked about, or maybe it was Paul Krugman's talked about all New Jersey as one of the densest populations in the country with one of the highest home price in the country but an even higher median income on average. And so it turns out that paying a high price for homes in New Jersey is actually cheaper then an inexpensive home in another part of the country relative to your income.
So that really begs the question how significant is local income to vacation properties, lakefront homes and beach houses.
Well, you know, it's in danger of saying it depends, but it depends.
You know.
I think about a market that that I lived in and cover market like Manhattan, which is known for lots of pidtees, you know, places in the city that people in the suburbs buy homes there. If you look at the median income in Manhattan, it has no bearing on the price of housing because there's such an international and also, you know, affluence that gravitates there. So so the meeting income doesn't really relate.
It's you know, it's like, you know, seventy thousand or some you know, you know, and the median home price in Manhattan is about a million two, which it gets you a studio, right, maybe a small one bedroom in a walk up.
So since you're mentioning foreign buyers, let's talk about what's going on with the public policy and in particular the dollar. We've seen the dollar full off from its highs recently. You talked about this in a recent research note. What does the strength of the dollar mean for potential buyers of real estate from overseas? And what has let's just call the damage to America the brand the black guy that we sort of see Uncle Sam having. What does that mean for outside purchasers.
At least at this point, it's an offset in other words, that we've had periods of time where you know, you know, if you're coming from Europe, you were enjoying a fifty percent discount off the currency play for a US home, and so New York, you know, had a tremendous would have a tremendous surge every time the dollar got weaker.
We had periods I want to say two thousand and six, two thousand and seven where I called it the Irish Carpenter syndrome where you had sort of, you know, people of modest means in Ireland getting fifty percent discounts on million dollar condos in midtown.
Well about the other coast, what about Japan, China, Korea, It's Asia buying San Francisco, La Joia, San Diego, and even across the border of Vancouver.
Well, a big driver is access to university, high quality universities, and so the Asian demand, that's one of the amenities they're really looking for, you know, sort of over the long run.
The problem with.
The weaker currency or the weaker dollar is that the state of immigration and the sort of what I call the tariff tantrums and the uncertainty that is abound at the moment has essentially at least you know, in my anecdotal observation at this moment is you know, it's offsetting the benefit of a discount that we're not seeing the influx of international demand that we normally would expect during this this type of dollar environment.
So, since you mentioned the tariff tantrum that seems to be keeping mortgage rates elevated. Doesn't really matter to luxury properties three four five million dollars. Those are mostly cash deals I've learned from in your research notes. But what about you know, younger folks in their not in their twenties and thirties, but perhaps in their late thirties and forties who want a vacation property. They're not spending tens
of millions of dollars. They're spending something a little more reasonable, but they're probably putting ten twenty thirty percent down and putting a mortgage on it. What is these elevated mortgage rates doing to that market?
So it's restraining it. The way to think of rates is they're sort of you know, stuck at sort of you know, just below seven percent on a fixed rate. When you when you're looking at a second home purchase, you probably want to add a half to three quarters of a percent to the rate of a primary residence.
So it's more for a second home mortgage than a primary home.
Yes, yes, And the underwriting is a little tougher as well. There's ratios that are a little bit tighter, you know, And that's the way to think of it. However, you know, you know, if you're looking for like a break in pricing, you know, pricing now with the uncertainty and the rates being stuck at an elevated level, the rate of price growth is starting, you know, has been really over the last few months, starting to ratchet down a bit.
So it's plateauing.
Yeah, I would say plateauing is probably a fair term in some markets, even slipping a bit. We still have markets that are rising, but those tend to be primary housing markets, like if you're in New York City. Metro Long Island grew ten percent last year, you know, big numbers.
So let's since we mentioned the non luxury second home. Let's talk demographics a little bit. What about millennials and Gen z are they remember during the twenty tens, they stared clear from the initial housing market. They were forming households at a very low rate. Along the same time as builders had kind of pivoted post crisis to multifamily
and away from single family homes. Not only are those generations now buying first homes, some of them, I hesitate say many of them, but some of them are looking at second homes. How do you think about demographics and where these folks look at a vacation property.
So you're right, we're absolutely seeing the millennials first just you know, push into home ownership, not just home ownership, but second home owner ownership. If you think about this at a top sort of at a top level, one of the things that's been changing with the baby boomer generation is buying homes or giving what the kids would wait until their.
Parents passed you. We were seeing a lot, you know, like twenty thirty years.
Of DeVos is the technical term. You're making the gift while you're alive, to.
Glow the basket and the glow right, and and that's a thing and just sort of you know, the quick observation is in the eighties when I started up my company, it was very common for, you know, in Manhattan, for parents to buy like a studio apartment sort of the size of a hotel room for their kids that were going to college in that and it would become a piedotar for the family down the road. Now they're buying three four five million dollar apartments, and.
As opposed to little efficiency type places, we're seeing a much bigger price.
Tag on this, as you know and I and that is giving these this generation sort of a jump start.
So you're kind of employing I don't want to say fractional ownership or co ownership. It's multiple generations of a family using the same second property. But what about those sort of things We've seen business models of fractional ownership, or I've heard stories of close friends two or three families co owning a property. Is this a real trend or is this still a rounding error?
To me, it's more of a rounding error. You know, it's an interesting storyline, but I'm not seeing that it's happening on the margin more than anything else. What's really interesting in the world of airbnb and investor ownership. You know, lenders there's a higher rate for that, right, a higher mortgage rate if you're financing. But you know, to my understanding, you can as long as you on a second home, as long as you.
Control the house, meaning you don't have tenants in it for more than six months, you can claim it as a second residence.
What does that do for you tax wise if it's a second residence, as always do a business.
That I don't know, you know, every situation is so different, but I.
Know that with with airbnbs, if you're using a professional manager to manage it for you, then it's considered an investor property.
It's it's not. And you know we've had like in the southwestern US, you know, there's a massive oversupply of Airbnb properties that are not sort of covering the monthly costs. So I'm not necessarily encouraging that.
There's going to be some supply coming on the market. When people say, hey, this just isn't worth the headache, is that the implication?
Yeah, yeah, that that you know, I'm not getting the returns that I that I thought I would get. You know, because everybody had the same idea at the same time, there's certainly a place for it, but I think it's been a little bit over overused.
And you know, the other thing is, and you know, when we think about Airbnb versus being an investor, a pure investor in renting it out for you know, for six months or a year, is that you don't get to use the property right and let you know, And and that's been one of the selling points of Airbnb
as a you know, as a landlord. And then the other thing is that generally, you know, when you look at their data, they generate about two and a half times the rent per square foot of a one year lease, and some even generate more like one fine Stay is a sort of luxury Airbnb, and it's like three times.
Rentals are more expensive than longer term rentals. Yes, so let's I think everybody knows what are the super hot destinations, but I know the super hot vacation home destinations. But I know, you crunch a lot of data. What do you see as sort of up and coming? What do you see as hot that are probably going to surprise most people who pay attention to real estate.
Well, I think if New Hampshire and from hot, which isn't really.
A or a ski ski location.
Yeah, that's probably my my built in bias for going north when the kids are young for every vacation and not south. But there just seems to be especially probably more New Hampshire than Vermont, a tremendous at least in the northeast. There was a from the pandemic through now there was a tremendous boom in New Hampshire housing because
of the second home phenomenon. What's really interesting something that I hadn't paid much attention to until the last couple of years, is with the whole push for rto you return to office, some people that are buying second homes really want to be cognizant of their employers', you know, future policies on how often you have to be in the office, because.
I know I could take a cannonball from West Hampton into Manhattan and it's marginally longer than my normal commute into the city. But it raises an interesting question, how has the rise of the remote work, work from home and the return to office, how is that impacting buyer preferences for vacation homes and where they're located.
So there was a word that somebody I was giving a presentation, you know, right after the sort of dark days of the pandemic, and I remember a real estate agent, you know, I was trying to describe that, you know, people moving to a second home market because they could work remotely. I called it co primary basically it was a co primary residence. So what people what I found, people coming out of a pandemic were looking for quality of schools, if.
They had a young family. You know, they were looking at things that you normally don't consider internet, you know, quality, things that you normally only don't consider when you're buying a second home. The hall day would be about second home is to get away from it all. But that's been sort of co opted by the need to work or the desire to reduce commuting or you know, you know who doesn't like to maybe work in their pajamas.
Right, So, how would you recommend, given all of the apps, all of the data, all of the things that are out there, someone shopping for a vacation property, how should they be using an app like let's say Zillow or redfin in order to help them find a vacation property they really want to own.
Right, So, you know, the apps make it all accessible pictures. You know, you can see lots of information.
But this sounds old school, But once you have that information, you know you have you know, you've looked at a you know, online a dozen properties that sort of you know,
make sense to you. You really need to see an agent, you know, you need to talk to a human being, you know, and someone that's a local expert in a market, which is a whole other thing which you can through these apps figure out, you know, does their name pop up all over the place, and have them talk you through it if there's a moment in your life that you need handholding. Even though you think you know everything.
I think it's home bying you do, and you know all the sort of stories while they're just trying to sell you out. Yeah they're trying to sell you a house, but they're also they're also a wealth of information and you can't get that online.
Huh. Really really interesting stuff. So final question in two parts, what sort of advice would you give somebody who asks, Hey, I'm looking to buy a luxury property in a hot area. And what advice would you give to a millennial someone in their late thirties or forties. Hey, we'd love to have some reasonable vacation property. What do you tell those folks?
So the first is incredibly obvious. There is so much information at your fingertips in terms of understanding the cost the additional mortgage expense if you're.
Going that route.
To think about the equity that you have in your existing primary residence, if you have one. You know, right now we're you know, basically looking at record or near record home equity because of the price growth that we've seen over the last five seven years. And maybe that's a financing vehicle or an acquisition vehicle for your purchase.
Certainly down the payment you could borrow from your home, even though it will have to be disclosed to the bank.
Yes, yes, you know, and you know banks, you know listen, if you have a boatload of equity in your home, you know it's you know, I see this quite a bit where people use that to buy a smaller home, a second home.
And you know, we as we've seen in the past, leveraging up your primary residence to buy a luxury property. How could that ever go wrong?
Right right right right exactly, you know, and and.
The sort of saving grace to that, unlike during the financial crisis is that credit conditions remain tight, so lenders aren't just giving away.
Loans.
If you have a pulse or foger mirror like we had during the financial crisis, it's actually a thing. You know, they're actually doing their due diligence.
And doing their jobs. Go figure, that's a crazy concept.
It's kind of a crazy concept. But let me refocus you.
Let me refocus you on the luxury question, because I know you bought a property not too long ago. I bought a property not too long ago, and I was I learned from your experience. I was completely frustrated by people making all cash offers for over the asking price. And I'm like, I can't believe we lost another house. I thought we were in. So someone comes to you and says, I'm doing pretty well. I got a nice bonus this year. We'd love to get a vacation property,
and we're not. We're looking over two million dollars. We're not going to go crazy, but we have a decent budget. What advice do you give somebody like that, Well.
The first thing is, you know, if you're in a housing market with limited inventory.
New York Metro, the share of bidding worth of transactions is in the forty ish percent, meaning that forty percent of the closings the buyer paid over ask. That's a reality.
Still twenty twenty five, that's going on.
Absolutely, it is not what it was six months ago. Is fifty more than fifty percent in the New York metro area, you know, outside of the city. The city isn't seeing that city is a much lower number. But but that's sort of the reality. But then you know, if you go to other markets, like we were talking about the Sun Belt, you know that that's almost non existent. I just still think that the sellers are embedded with sort of a bravado that you know, is still you know,
was built up during the pandemic. And I also think that buyers are sort of have a bravado that they're going to get the most amazing deal, and so that the gap between them, you know, is a lesson and it takes the parties a while to you know, to sort of meet halfway. Both have to sort of capitulate
to the actual market conditions. And part of what's happened things have happened so quickly, just with the tariffs and the confusion, I had this sort of cocumyey theory that came up out of you know, the you know, when we think about tariff policy having foot flopped at least fifty times, there's this uncertainty that we're sort of all living with, and in some ways, that sort of chaos or uncertainty as it relates to housing becomes a constant
as opposed to this new thing. It's sort of, you know, it's a reality, and if you're in the housing market, you have to be sort of aware that there is a chaos to it still and don't be afraid of it.
So to wrap up those people searching for a vacation property, a lake house, a beach house, a mountain house, we've seen some uptick in the amount of supply, and perhaps in some areas prices have stopped going up, at least not going up as aggressively as they have been. But be aware it's very regional, it's very geographic specific. There is a demand for more of these properties, especially from millennials and soon gen z.
Keep your eye on what's.
Going on, get informed, and work with a local expert to help find your dream vacation property. I'm Barry Redolts, You're listening to Bloombergs at the Money