Second and vacation home builders are seeing a surge in demand, though the impact varies widely by market.
When shutdowns from the COVID-19 pandemic struck Southwest Florida’s second-home market this spring, Stock Development had been having a banner year.
The Naples-based firm, which builds luxury residences under its Stock Signature Homes brand with an average sales price of around $1.4 million, had weathered a blip in sales and activity at the beginning of 2019, when buyers and builders alike were fretting about the possibility of a recession ahead.
When that recession never materialized, sales took off. The result was a frenzied period for most of 2019 going into 2020 that saw Stock—ranked No. 162 on the latest Builder 100 list—struggling to meet demand. With a history of spec homes accounting for nearly 50% of its sales, the company ratcheted spec inventory down to just 30%, as custom builds dominated the remaining 70% of its book.
“From February 2019 on, we probably had the strongest 13 months we’ve ever had as a company,” says Claudine Léger-Wetzel, Stock’s vice president of sales and marketing. “We were dramatically shifting our business model to 70% custom builds, because we just couldn’t keep up.”
But when the novel coronavirus hit America’s shores hard in March 2020, that sales momentum fell off a cliff.
“For a six-week period from March 20 through the end of April, we saw a huge downturn,” Léger-Wetzel says. “Going into 2020, my projection for April was 27 sales. Instead, we ended up doing three.”
The impact was so swift and dramatic that when Stock shut down its offices March 20, Léger-Wetzel, a 20-year employee of the firm, teared up during a companywide conference call to prepare the business to go dark. “We had no idea when we were going to see each other again,” she says. “It was quite emotional.”
Home of the V-Shaped Recovery
What a difference a few months makes.
Going into July, as many states continued to open back up even as the number of COVID cases across the U.S. surged, Stock was doing blistering business once again. With a goal of 21 sales in June, it approached the end of the month having executed on 32 deals to blow past its benchmark.
Further, at Isles of Collier Preserve, a 2,400-acre master-planned community just south of Naples’ highly sought-after 5th Avenue shopping and entertainment district, Stock was closing in on its full-year 2020 goal of selling 55 lots in the community, with 50 signings in the first six months. The firm has even been able to institute price increases, announcing a $20,000 base price increase at the beginning of July, which was quickly followed by a $30,000 increase scheduled for mid-month. Even with those rising prices, the sales have kept coming in.
“It has become a phenom, and we really can’t believe it,” Léger-Wetzel says. “We’re now seeing this frenzy because folks are like, ‘I’m going to miss out.’”
Léger-Wetzel and Stock Development are not alone. The steep sales dive and whipsawing resurgence of buyer activity the firm saw is emblematic of builders’ experiences selling into the high-end, luxury second-home and vacation market in a post-COVID-19 world. While that hasn’t been the case across all sectors of the second and vacation home market—there are still signs of trepidation at the lower end—if the V-shaped recovery is happening anywhere in home building in 2020, it’s occurring in this segment. The revamped momentum highlights a shift in the attitude of high-end buyers who have made it through the initial anxiety and uncertainty of COVID, only to emerge with a live-in-the-present and act-now attitude on the other end.
Carpe Denizens
“After the initial phase, when everyone was unsure of what was going to happen and there was no activity on the market for four to six weeks, things got compressed,” says Michael Ziman, founder of Long Beach Island, N.J.–based Ziman Development, which builds approximately a dozen high-end custom second or vacation homes annually with multimillion-dollar price tags for ultrahigh net worth individuals. “Then, you had people living in Manhattan or other cities who felt like they had to get out to feel safe. So after the first wave, those people who were sitting on the sidelines realized life is short. They started asking, ‘What am I waiting for?’”
The result was a two- to three-time surge in interest and demand for the homes Ziman builds. “People are making that decision based on possibly not traveling to Europe or traveling overseas for an extended period, and being able to have a house within an hour or two of their primary residence,” he notes.
On the other side of the country, the pace has picked up considerably as well. “The second-home market is hot,” says Dave Nielsen, president of Southwest Utah–based Cole West Home, which closed 180 homes in 2019. “The excess elbow space has promoted Southern Utah as a place of safety for many during the pandemic.”
But it isn’t just on the ultrahigh end that builders are seeing a resurgence of activity among potential second and vacation home buyers. At Chantilly, Va.–based Evergreene Homes, where second and vacation homes account for roughly one-third of the company’s sales mix and start as low as the mid $500s at the Delaware beaches and Virginia and North Carolina lake communities, buyers are also back.
“I’d say seven out of the 10 people I talked to on March 15 when things shut down have already called me back in the last two weeks to try to get things going again,” says Tim Naughton, president of Evergreene’s Delaware and Maryland division. The firm ranks No. 159 on the latest Builder 100. “The second-home market is somewhat tied to the stock market, so as everybody’s portfolios came back, they got more comfortable with looking at a second home again.”
For Evergreene CEO Robert Cappellini, that reemergent wave of interest in June, coming on the heels of COVID-19’s initial outbreak, as well as widespread protests over George Floyd’s death, seemed to originate as much from buyers’ crisis fatigue as it did from their rebounding stock positions.
“It just seems that people are really a little bit overwhelmed with everything going on in the world, whether it’s the politics, or COVID, or both,” Cappellini says. “I think they’re saying, ‘You know what? Let’s do this.’ Interest rates are low. It’s a good time to make a move if they have the means.”
With mortgage rates hovering at or below 3%, that’s true even for buyers who otherwise would pony up millions of dollars in cash to buy a home outright.
“When you’re dealing with buyers at this level, it’s not like they don’t have the cash,” says Ziman. “But I have a deal that’s closing next week where the client is getting money at 2.25%. He doesn’t need it, but he told me if they want to give him money at 2.25%, he has to take it. That’s the nature of a lot of our buyers who have accumulated millions of dollars to be able to buy a second home. There’s a certain level of sophistication, and they realize when to and when not to take advantage of those rates.”
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