• June 28, 2018

Original Article from Market Watch can be found here

Want a good deal on a home? Follow the tourists to these sunny locales

Home values in vacation markets still lag the rest of the country

While home values skyrocket nationwide, housing markets in some of the country’s most popular vacation destinations have been slower to take off.

Home values in vacation destinations still remain 9% below the peak they reached during the pre-recession housing bubble, according to a recent report from real-estate website Zillow ZG, +0.02% Meanwhile, homes in markets that contain the smallest share of vacation properties are now worth 14% more than before the foreclosure crisis.

For instance, along the eastern shore of South Carolina’s Hilton Head Island, more than half of the homes are vacation properties. In that area, home values dropped 41% during the recession — but in the greater Beaufort County area, values fell only 36%.

This discrepancy is even true in Western states, which have seen some of the country’s most notable home value appreciation over the past few years. In the West, vacation home markets are still 3% under their bubble peak. Still, homeowners have fared better than their those who own vacation properties in the South where vacation home markets there are still 17% less valuable compared with their peak.

Before the recession, vacation homes saw their values jump 117% between 2000 and 2006, well above the 83% appreciation experienced in markets with few vacation properties. But vacation homes lost more value than other properties did during the downturn. And the prolonged economic recovery has stunted their ability to bounce back.

“Vacation home markets have lagged the rest of the country during the economic recovery, despite an exaggerated boom and bust a decade ago,” Zillow senior economist Aaron Terrazas said in the report. “As the economy improves and more Americans feel secure in their personal finances and primary residences, it is possible that more will look to buy a vacation home.”

And other factors could continue to prevent vacation communities from rebounding. Changes ushered in with the new tax law removed many of the tax advantages associated with owning a second home. And environmental risks in many vacation communities, such as hurricane-fueled storm surges and rising sea levels, have softened demand.

Indeed, beach towns represent some of the most affordable housing markets in the country. Gulfport, Miss., is the most affordable beach town nationwide, according to an analysis from Realtor.com. The median home list price there is $184,100, which is roughly 40% cheaper than the median list price nationwide.