Posted on: Sunday, March 21, 2004

Low rates boost sales of 2nd homes

By Jeff McKinney
Cincinnati Enquirer

When Mark and Kim Pomeroy bought a second home at Hidden Valley Lake in southeastern Indiana, they figured it would be a great place to relax and teach the kids to water-ski.

In the process, the Evendale, Ohio, couple joined a growing U.S. trend: second-home buying sparked by low home mortgage rates and the desire of baby boomers to diversify their financial assets. Nationally, an estimated 445,000 second homes were sold in 2003, up 24 percent from 2001, according to the National Association of Realtors.

The central push is coming from the economic clout of the nation's roughly 80 million baby boomers, many in two-income families.

According to 2003 data, the median age of a second-home buyer is 47 with a median household income of $85,900, said Walter Moloney, an analyst for the National Association of Realtors.

Key reasons why second homes are selling:

• Low mortgage rates. Even after rates hit 40-year lows last summer, they've dipped again and are hovering in the 5.4 percent range for a 30-year loan.

For people with chunks of disposable income, low rates make a second home appealing.

• A drive to diversify assets. Some people are turning to real estate as an investment because interest rates on traditional investments are low and the stock market has been volatile. Analysts say strong demand for recreational or investment property is causing the value of homes to appreciate nationally at an annual rate of roughly 8 percent to 10 percent.

• Demographics. A growing number of people in their 40s and 50s are expected to fuel the market for at least another decade.

Although some people invest in a beach retreat a thousand miles away, many second-home buyers are looking for a place closer to their main home, Realtors say.

Take the Pomeroys.

Mark, 46, and Kim, 43, wanted a second place that would give their five children ranging in age from 6 to 15 a spot to spend time with friends as they grow up.

Mark Pomeroy, director of engineering for a medical-device company, said the couple bought their home for about $300,000 in September.

The family hopes to stay at the home every summer weekend and to hit nearby ski resorts often in the winter. Another plus: It's only 30 minutes from Mark's office.

Joseph Newcomb, a 53-year-old Cincinnati firefighter, owns two condominiums in Naples, Fla., which he rents to "snowbirds" who head south during the winter.

Newcomb said he invests in condos because they yield more than mutual funds or certificates of deposit.

Newcomb said his Naples condo is worth about $140,000, up $40,000 since mid-2001.

He uses the property to get a mortgage tax deduction, but he still can use the condo for himself, his family and friends.

He plans to convert one of the condos into a second home, which he'll use when he retires in several years.

By renting the condos out from January though April, Newcomb says, he makes enough income to cover expenses for a year.

"I'm letting everybody else pay for my second home while I don't use it on a regular basis," he said.

Daniel Ray, editor in chief at Bankrate.com, warns that second homes add another layer of expenses for the owner, including more property taxes, insurance premiums and maintenance costs.

"It can be a great thing," Ray said, "but it's not risk-free."