Home value declines in 2nd home markets
Investor · United States · Member since 2020 · 202 posts · 284 votes
Home value declines in 2nd home markets
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Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4yI wonder where these 2nd home markets are? I mean obviously they aren’t talking about Las Vegas or the entire state of Florida, Arizona, or Hawaii which are still skyrocketing. You talk about the fear of losing $100k quickly? Well anyone who didn’t buy 6 months ago lost AT LEAST $100k, maybe $300k PER PROPERTY THEY DIDN'T BUY if you count the increased mortgage interest. (3%-5% is a $42k loss over 30 years PER $100k purchased.) There’s no reason to believe those numbers won’t be twice as large in 6 more months.
20 Replies
- Member since 2022 · 1k+ posts · 1k+ votes4y
Tough call. I think if it’s a market with strong historical visitor numbers then you will be fine in the long run, but you could very well be overpaying relative to the next few years.
The other tough thing is that at this time, depending on the property and market, by the time you close and get set up the summer high season may be halfway+ over. So you may have a lot of buyers sitting on the sideline for the 6-9 months in hopes of buying cheaper later.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes4y
I wonder where these 2nd home markets are? I mean obviously they aren’t talking about Las Vegas or the entire state of Florida, Arizona, or Hawaii which are still skyrocketing. You talk about the fear of losing $100k quickly? Well anyone who didn’t buy 6 months ago lost AT LEAST $100k, maybe $300k PER PROPERTY THEY DIDN'T BUY if you count the increased mortgage interest. (3%-5% is a $42k loss over 30 years PER $100k purchased.) There’s no reason to believe those numbers won’t be twice as large in 6 more months.
- 4yKenneth RolfePro MemberBoise, ID · Member since 2018 · 57 posts · 39 votes
I'm no expert so take this with a grain of salt, but I'll say I've missed out on a lot of money sitting on the sidelines. I'm closing on my first STR on Monday. I'm nervous, anxious and excited. Worried about the possibility of losing money… sure, but the numbers make sense at the purchase price and terms I'm buying at so I'm moving forward.
If things go according to plan, I won’t have any intentions of selling anytime soon so a downturn housing prices shouldn’t impact things as it should bounce back long term. Hope for the best, plan for the worst and if things still make sense I say move forward. And hey, maybe a decrease in prices will help me get into the next one :-).
Good luck as you work through your decision! - 4yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesIf you’re in for the long term and have cash reserves to weather a storm you’ll end up fine, as long as you have a low interest FIXED rate long term non balloon mortgage, since rates are still very low by historical standards.
Quote from @Sean Bramble:
Hey everyone - I’m listening to the latest On The Market podcast and they are specifically talking about value declines in 2nd home markets due to demand from 2nd home buyers drying up due to rising rates/ affordability. I’ve also noticed Zillow dropping 12 mo appreciation estimates for several markets I have searches set up in (flipped from +10% to -10% within the last month - major change). These 2nd home marketsare the same markets many of us target for STRs investments .. so this is worrisome
I’m under contract on my first property in one of these markets which pencils out well projections-wise… plenty of profit margin to weather a recession/ lower demand from guests and not have to sell at a loss … but I still feel hesitant buying an asset that could lose $100K in value quite fast. Any thoughts? Should I be waiting these next few months out to see what happens? I’ve seen a few other posts on this topic which felt alarmist at the time, but now the talking heads on BP are talking about it as well … hmm … - Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes4y
No expert on the 2nd home market but I wouldn't put a lot of weight on Zillow's estimates of what the market is doing. Keep in mind the huge losses they suffered last year due to their inability to predict prices on the houses they were trying to flip. I take all their info with a grain of salt. I use the site frequently but there's huge margins of error.
- Investor · United States · Member since 2020 · 202 posts · 284 votes4y
Thanks everyone for the input! Yeah I think the STR "bubble" Dave Meyer was referring to on the podcast was a potential perfect storm of a handful of forces colliding:
- 2nd home demand drying up due to 1) increase in rates/ decrease in affordability, and 2) people moving back into a more "normal" way of life in their primary homes post-pandemic/ lockdowns
- Decreases in STR guest demand from the pandemic highs (i'm seeing 10-30% declines in a few markets I'm following, but this isn't true everywhere)
- The fact that many investors bought in at pandemic highs with only 10% down and will be underwater if home values in their markets drop more than that
- The fact that some investors based decisions off of super high pandemic STR revenue averages that Airdna uses to project income ... and invested in homes with razor thin profit margins
- The compounding effect a recession in the economy would have on the above issues (more people selling their 2nd homes, and further declines in STR guest revenue)
Definitely something to ponder ... I feel really good long-term about the property we have under contract as well as the market it is in, so I doubt we will pull out. Feels too much like a home run to just let go of, plus I'd really prefer not to sit on my hands waiting for the market to drop. But I also don't want to "buy at the top" as they say... hopefully some more thinking on this topic will emerge during my inspection period ... we'll see ...
- Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes4yI'm advising my clients to be extra cautious right now and to pull the trigger on purchases, when the deal is strong + it's a property that will provide great cash flow. Through negotiating, and patience, my clients and I are getting amazing deals on properties that will cash on cash return at approx 25%-40%.
Quote from @Sean Bramble:
Hey everyone - I’m listening to the latest On The Market podcast and they are specifically talking about value declines in 2nd home markets due to demand from 2nd home buyers drying up due to rising rates/ affordability. I’ve also noticed Zillow dropping 12 mo appreciation estimates for several markets I have searches set up in (flipped from +10% to -10% within the last month - major change). These 2nd home marketsare the same markets many of us target for STRs investments .. so this is worrisome
I’m under contract on my first property in one of these markets which pencils out well projections-wise… plenty of profit margin to weather a recession/ lower demand from guests and not have to sell at a loss … but I still feel hesitant buying an asset that could lose $100K in value quite fast. Any thoughts? Should I be waiting these next few months out to see what happens? I’ve seen a few other posts on this topic which felt alarmist at the time, but now the talking heads on BP are talking about it as well … hmm …
Now is the best time since 2008/2009 to get great deals on real estate. Just know the market will very likely continue to soften over the next 2-12 months, so it's imperative that we get strong deals, to insulate us from further drops. Most sellers know and/or fear this is happening, which benefits the buyers. For those buying, this is an opportunity, not a problem- if it's approached correctly. - Member since 2019 · 7k+ posts · 4k+ votes4y
I will just keep buying it due to my past experience. Real estate is best asset class to hedge against inflation. What you want to check is the level of inventory in your hyper-local market and whether your area is in super-overbought market or not, there's a recent survey from Forbes if I'm not wrong, you can analyze based on that.
This inflation will not go away soon and folks that have liquidity will just keep purchasing. This level of interest rate is actually still the same as in 2009-2010.
Things may be different IF the interest rate goes past 6% or oil moves beyond $150. - 4yNathaniel CherubiniPro MemberInvestor · Hernando FL Stationed in DC, VA. · Member since 2016 · 58 posts · 48 votes
RE is about the long game. Have a plan and have a backup plan (converting to long-term rental?)...I know folks who bought at the "top" of the market in 2005 and were under water for years. They held on making modest cash flow for years and have recently been able to reposition their capital due to the strong gains of the past few years. If they did not buy in 2005 (which looked like a bad move for a decade), they would have missed out on the modest cash flow plus experience and debt pay down for the past 17 years. They also would not have been in the position to sell or refinance recently to take a windfall and reinvest into stronger ROE properties now. Times are uncertain and certainly changing but the fundamentals of RE remain constant and sitting on the side line is a losing strategy. Do your homework (looks like you surely have), have a plan, and stay in the game!
- Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes4y
@Sean Bramble I'd still buy as long as there's enough cash flow to hold onto the property. Also a decline in 10% of home prices, is that list price or sales in the areas? Decrease in list price does not always equal a decrease in median sales price for an area.
- FL · Member since 2018 · 81 posts · 68 votes4y
Quote from @Sean Bramble:
they are specifically talking about value declines in 2nd home markets due to demand from 2nd home buyers drying up due to rising rates/ affordability.
Be careful with looking at a "housing market" or "2nd home markets". In a given area like Destin for example there may be (completely made up numbers here):
15000 STR capable 1 br condos
3000 non STR capable 1 br condos
10000 STR 2 br condos / homes
3000 non STR capable 2 br condos / homes
7500 STR 3 br condos / homes
5000 non STR capable 3 br condos / homes
5000 STR 4 br homes
3000 non STR capable 4 br homes
3000 STR 5 br homes
1000 non STR capable 5 br homes
1500 STR 6 br+ homes
1000 non STR capable 6 br+ homes
I'd love to know the real numbers but you get the concept. Every one of these has a different investment profile, buyer profile, seller profile, etc. The same city has STR and non STR areas. Zillow and others are reporting on all of this with one percentage number. It is not equally distributed. Do you think the supply/demand is the same for all of these?
Then consider that beachfront vs non-beachfront are also unique. HOA vs non HOA. No pool vs community pool vs private pool. 1 br condo vs 8 br beachfront home with pool? Do you think the owners of the 1 br condos have the same financial profile as the owners of 8 br beachfront homes?There are macro factors for sure to consider, but know YOUR target market and don't get caught up in the news articles that talk about a vague "2nd home market". If the people in your market are buying investment homes for cash, do interest rates matter to them?
- 4yBonnie LowPro MemberLender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votesReal estate is cyclical. There are opportunities in both up and down markets. Personally, I'm looking forward to a bit of a softening in the STR market that I'm looking at. I'm watching prices creep down and I'm ok with that because I haven't purchased yet. We intend to hold for the long run, truly use it as a second home as well as a vacation rental and it's a very strong year round market for tourism and an area people want to live so there are multiple exit strategies. So a temporary softening doesn't worry me at all. That said, if I'd bought recently, paid too much, was counting on maxed out rates and occupancy that aren't materializing and was hoping to turn around sell to capture the appreciation I'd feel very differently.
- Realtor · OK · Member since 2020 · 138 posts · 165 votes4y
I can remember the days of 2020 when everyone said AirBnBs/STRs were doomed and the world was coming to an end. Fast forward to 2021 and it was a spectacular run up in demand to buy STR properties in vacation markets. Now we are 2022 and because rates are ticking up everyone is scared of investing in STR markets. I believe the investors that can be creative and see the opportunities in this environment will be the ones to reap the rewards versus those who just want it handed to them on a silver platter. If you want risk free go buy Treasury Bonds! (rant complete)
- Investor · Greenville, SC · Member since 2020 · 210 posts · 302 votes4y
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin markets like Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
- Realtor · OK · Member since 2020 · 138 posts · 165 votes4yA similar trend was happening down here, I could go into the price history for 10 actively listed vacation properties and 6 of them would have been bought between 2020 and 2021 with an increase of 30%+. When I look at the photos from when it was purchased to when it was relisted there are no upgrades except the price. It's just what happens at the peak of a cycle so you're right about legitimate concerns with overpriced properties in vacation markets with declines in vacation goers. I just don't think people should throw the baby out with the bath water by saying STRs are dead or not worth investing in now.
Quote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
- Investor · United States · Member since 2020 · 202 posts · 284 votes4y
Quote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin markets like Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
I'm at an STR conference in Nashville right now and am hearing this over and over again from Smokies investors - bookings are way down for the summer. Spoke to one guy who is still investing in the market, but he stressed that he is underwriting his deals with an avg of 2019/2020 revenue (rather than trailing 12 mos figures Airdna is spitting out). What this means to me is the "shoot from the hip/ buy anything and it will cashflow" days of STRs are over. You have to get your hands dirty with analytics to make money now, and the black box revenue estimate Airdna shoots out just isn't going to cut it anymore
- Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes4y
Quote from @Sean Bramble:
I’m at an STR conference in Nashville right now and am hearing this over and over again from Smokies investors - bookings are way down for the summer. Spoke to one guy who is still investing in the market, but he stressed that he is underwriting his deals with an avg of 2019/2020 revenue (rather than trailing 12 mos figures Airbnb is spitting out). What this means to me is the “shoot from the hip”/ buy anything and it will cashflow days of STRs are over. You have to get your hands dirty with analytics to make money in this industry, and a black box estimate Airdna shoots out just isn’t going to cut it anymoreQuote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin markets like Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
I'll 2nd that - our bookings are down quite a bit from last year at our cabin in the Smokies. All the more reason to make sure your STR has unique features to separate from the competition. Something to differentiate you from all the other cookie cutter cabins around you.
I will say for us at least that we haven't been hit with lower occupancy necessarily, just much shorter lead time. We're booked for June and half of July right now - average lead time has been around 30 days lately. Last year we were consistently booked up months in advance.
- Rental Property Investor · Granbury, TX · Member since 2019 · 25 posts · 11 votes4y
Quote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin markets like Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
Completely agree with Wilson.. We currently own in the Smokies. Purchased about 4 years ago. I am also watching several other markets and waiting to buy our second STR, maybe in a different market. I'm not seeing prices come down yet in the Smokies, so not sure how long before pricing cools.. anyone have any ideas on that?
- Rental Property Investor · Granbury, TX · Member since 2019 · 25 posts · 11 votes4y
Quote from @Kevin Luttrell:
Quote from @Sean Bramble:
I’m at an STR conference in Nashville right now and am hearing this over and over again from Smokies investors - bookings are way down for the summer. Spoke to one guy who is still investing in the market, but he stressed that he is underwriting his deals with an avg of 2019/2020 revenue (rather than trailing 12 mos figures Airbnb is spitting out). What this means to me is the “shoot from the hip”/ buy anything and it will cashflow days of STRs are over. You have to get your hands dirty with analytics to make money in this industry, and a black box estimate Airdna shoots out just isn’t going to cut it anymoreQuote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin markets like Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
I'll 2nd that - our bookings are down quite a bit from last year at our cabin in the Smokies. All the more reason to make sure your STR has unique features to separate from the competition. Something to differentiate you from all the other cookie cutter cabins around you.
I will say for us at least that we haven't been hit with lower occupancy necessarily, just much shorter lead time. We're booked for June and half of July right now - average lead time has been around 30 days lately. Last year we were consistently booked up months in advance.
Agree with all of you. We own in the Smokies. Bookings are slightly down, and booking window has tightened up quite a bit.. We purchased 4 years ago.. We are in it for the long haul. I've been analyzing quite a few properties, and haven't found anything that I just can't live without. - Rental Property Investor · Granbury, TX · Member since 2019 · 25 posts · 11 votes4y
Quote from @Kevin Pillow:
A similar trend was happening down here, I could go into the price history for 10 actively listed vacation properties and 6 of them would have been bought between 2020 and 2021 with an increase of 30%+. When I look at the photos from when it was purchased to when it was relisted there are no upgrades except the price. It's just what happens at the peak of a cycle so you're right about legitimate concerns with overpriced properties in vacation markets with declines in vacation goers. I just don't think people should throw the baby out with the bath water by saying STRs are dead or not worth investing in now.Quote from @Wilson Hunter:
While I’m bullish on STRs for the longterm and will continue to invest in them, the situation is different than 2020 and is not only interest rate hysteria. There is a legitimate decline in vacationing in many markets (especially mountain markets or low lead time markets) in the summer of 2022. This is likely to have some effect on prices in the next 3 to 12 months. For example, many Smoky Mountain cabins were priced in anticipation of continued tourism growth from 2021 numbers. While the decline or normalization is fine for most of us it definitely is not fine for many of the cabins purchased in the past 6 months. I have a hard time seeing how 90% of the cabins sold in the past 6 months in the Smokies are making money with the numbers for this summer, for example. This is the same for smaller cabin Blue Ridge where you can already see price drops on types of cabins that were being bid up way over list merely 3 months ago.
I think that STRs are worth investing in, just not 100% of the time. You just have to know your market and you have to do the analysis. Has to be a strong deal.. can't be a small margin or 10% coc. I make sure I have at least 9-12 mos of cash reserves so that we can ride out a downturn in the market. I mean, after all, the whole purpose of investing is to make money, not break even.. ;)
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