Coastal Castles: Shore Real Estate Still Sizzles

The warm summer air of South Jersey beaches still beckons buyers into a simmering vacation home market…

While it’s true that the housing bubble that has been talked about more than Martha Stewart’s stocks didn’t burst, realtors, sellers and buyers alike are cashing in their reality checks on a new and changing market. The market trend over the last few years, with low inventory and high-spiking sales prices, seems to be steadily slowing in recent months. Economists in Washington, DC and at the National Association of Realtors say that the trend is healthy, though it feels strange to most people who have been experiencing the sellers market of the last few years.

Although the subtle slowing of the market is, at best, a minimal shock to consumers, it is more normal a situation than the market has been recently. For those who are still fighting change, what is descending upon us is called a ‘balanced’ market, and it’s actually a good thing. As Goldilocks said it is not too hot, not too cold --- it’s just right. There is no exception when it comes to the ebb and flow of real estate on South Jersey’s shores. It’s just right.

“Looking back to May 2005, the sale inventory in Stone Harbor and Avalon was approximately a three to four month inventory. Now there is approximately a nine to twelve month inventory to active sale listings. There is more than double the number of single family homes and condominiums listed for sale than one year ago,” says Hugh Merkle of Prudential Fox and Roach realtors in Stone Harbor and Avalon.

“A year ago, there were numerous sales where there were multiple offers on properties and properties selling for more than the listed price. Now we are seeing very few multiple offers [on properties].”

There are several factors that have affected the sale of shore homes in recent months. Indicators, like interest rates, inventory and current events [like the Hurricane Katrina catastrophe] are all helping in some way to make all sides more equal on the real estate front, which includes a decrease of sellers asking exorbitant, inflated prices for their homes.

“The houses that are priced right are still moving. I feel that although the prices will not increase in double digits as in past years, we are still seeing appreciation,” says Linda Novelli of Prudential, Fox & Roach in Margate. Novelli also states that the extra inventory perceived by many is partly related to new construction in and around the shore area.

The balanced market overall leaves pockets of towns with promising sales trends in the shore area, with the bigger picture still being: houses are still selling, just in a different fashion than recent memory.

“We are encouraged and optimistic by the early indicators we see for the 2006 season. It is our view that Absecon Island is still not ‘over supplied’. The total for sale inventory represents approximately 5% of the total units contained in these two towns, which is historically a good ratio- approximately 350 properties for sale in Margate and less than 50 for sale in Longport,” says Jerome DiPentino of Premier Properties Real Estate, Inc. in Longport. “This balanced supply coupled with a continued demand is a recipe for another year of brisk sales.”

Certainly, though demand is still there, the buyers and sellers interested in real estate on the coast need to remember that houses are taking longer to sell, and home prices are not rising as fast. (Repeat mantra silently: “The balanced market is a good thing.”) In this type of a housing situation, sellers and buyers may not get exactly what they want – but neither party really loses. Sellers will still make out well in terms of closing in a relatively timely manner and getting a reasonable price for their homes. Buyers will find that they do not have to fight multiple offers coming in on their favorite property – and can afford to take a little longer in selecting the property. It’s no longer harried and seemingly out-of-control. In short, the vacation home market in South Jersey has gone from all-out-frenzy to promisingly-steady status.

So, what does this all mean for you as you head down to the shore, Internet printouts in hand, searching for your coastal castle?

Take Your Time, Do It Right
Invest in housing for your future enjoyment at the shore. In other words, it is safe to dive into the sandy waterfront properties, if you are doing it for the right, practical reasons in mind. Experts at the shore are advising that the current climate is not conducive to buying with only the intention of selling for large profit, as was a popular trend in recent years, when appreciation was skyrocketing at a blinding speed. If you are investing in a shore property, with the intention of spending some years in it, then you are coming from the right field. If your intention is to purchase properties at the shore just to sell higher, make a profit, and buy another fast, you may want to take heed.

“As a real estate professional when I am working with buyers, I never recommend buying a property and turning right around and putting it back on the sale market. My recommendation is when you buy a vacation home or investment property, the best strategy is to hold the property for three to five years and you will see the best return on your investment dollar,” says Merkle.

With the changing market, there are a few important things you should consider, that you might not have in recent months or years when considering shore real estate purchases:

Buy rather than don’t. Even if the pace is slowing and appreciation is not in the double digits percentage-wise, the chances are that even if home prices fall for a year or two, they will begin rising and you can eventually recoup your funds if you sell your property. Refinance or look into several mortgage options for your existing shore home or buying your first shore home. Mortgage rates have been hovering around the lowest levels in more than four decades. Hurricane Katrina and rising energy costs can keep rates low for a bit longer. However, they are anticipated to rise again. If you opt for the interest-only ARM, there will be a second payment shock when you will have to pay interest and principal on the loan.

Get information on the IRS 1031 Tax Deferred Exchange. If you keep a property for a few years as a property to rent out, and chose to sell it, using the proceeds to buy another property you are going to rent, the 1031 can defer your paying of capital gains tax on the sale of your initial property. This only applies to investment properties, however. So if you are using your shore home as a primary residence (not a rental property) you may not qualify.

Get information on the IRS Revenue Procedure 2000-37 – otherwise known as a “reverse exchange.” A reverse exchange is similar to the deferred exchange, but works if you found a replacement property but have not yet sold your own property. A third party can hold the title to your replacement property so that they may find a buyer for the property they are selling. It can allow for up to 180 days (a lead-time that may be very helpful in a balanced market) for the homeowner to find a buyer for the property they are relinquishing, at which time the funds can be applied to the new property, and you may qualify for the 2000-37 exemption.

It’s also helpful to remember that the baby boomers are looking lately for more long-term investments, with more years of boomers retiring to come. Studies show that the coasts of New Jersey and Florida rank highest for number of vacation home purchases. So what does this mean to you? The shore is a desired area, one with much to offer, and with the demand from the boomers as well as other demographics, will fall in line nicely in line with the current supply of inventory and value of the houses at our coast. According to NAR, the Jersey shore is among the most popular vacation spots in the country – a characteristic of our great shoreline that will never change. It allows those who live in Philadelphia, Washington and Philadelphia to take mini-vacations, which means it allows for a very steady stream of repeat and reliable rental income of your investment in shore real estate. It also secures a certain value on the properties at the shore, in general, as above average – which cannot be claimed by most vacation destinations.

Steady as She Goes…
The floodgates have now opened, and the real estate selling season at the shore is officially in full swing. Buyers, searching for their next vacation homes (or maybe a shore home as a permanent residence), and sellers who are posting their signs will be taking a more realistic look at their specifications and expectations. The climate of the market will always fluctuate, just as interest rates, and for that matter, like everything else in life. Nothing is forever, the upswing or the downturn in any situation. Don’t let the economy fully dictate how you will retire or on what you will spend your money. The shore home forecast is a solid, balanced one, and there’s no reason (and no better time than now) to go out and make a sensible offer on the home of your dreams. So get out there and make your desire a reality. Pull up a piece of the shoreline, stake your umbrella in the sand, and smile with the knowledge that the home you own in this wonderful paradise is only steps (or mere blocks) from where you’ve rested your lounge chair in ths sun. And, isn’t that what it’s all about?

Published (and copyrighted) in South Jersey Magazine, April 2006.


Author: Lara Webb-Barrett; Photo by David Michael Howarth

Please call us at 732-364-2015 and see what ERA Othello Realty can do for you and your real estate needs. We specialize in handling all aspects of real estate transactions throughout the New Jersey. Whether you wish to buy a home or sell a home we will be there every step of the way. From searching for your dream house, finding the home, negotiating the price, assisting with financing, inspection and at the closing ERA Othello Realty can help you buy your home.