Vacation Homes on Sale

Minnesota's Cross Lake glistens in the spring sunshine as real estate agents Jeremiah Bicknese and Tricia Erickson inspect waterfront homes listed for sale. One drab, four-bedroom rambler needs paint but is redeemed by a two-level wraparound deck with a lake view and a boat dock.

The sellers were asking $335,000 last summer and struck out; over the winter, they cut the price to $290,000. "It's still way overpriced for the condition it's in," confides Bicknese. Would the sellers take $250,000? "I bet they would," he says. "Absolutely."

Just a few hundred feet away sits a smaller but more appealing home, in much better condition. It has pine paneling, two fireplaces, a dock, decks with water views and cozy eating and sleeping areas. And it's been on the market for a year, priced first at $249,000, then $229,000 and now $209,000. "They'd take $190,000 if you did a cash transaction and closed quickly," says Bicknese.

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Such properties reflect a hidden slice of the real estate recession. From the lakes of Minnesota to the Arizona desert to the green hills of West Virginia -- not to mention everywhere in Florida -- so many properties are going begging that it's a raging buyer's market. If you dream of owning a vacation home and your finances are in good shape, this could be the time to make your move.

In 2007, the median price for vacation homes fell 2.5%, reports the National Association of Realtors. But that understates the magnitude of the slump in the market because it doesn't account for the vast number of sellers who are reluctant to discount prices enough to make a sale. Vacation-home sales actually plummeted by more than 30% in 2007, to 740,000 from a record million-plus in 2006.

Room to Bargain

There's no official database on vacation properties, but lenders and others in the industry say buyers are shying away for several reasons. With the overall slump in housing -- and with lenders tightening up on home-equity credit -- buyers can no longer count on tapping the equity in their primary residence to buy a second home. Meanwhile, flippers and short-term investors have all but disappeared from the second-home market.

That gives you leverage to negotiate, especially if you can take advantage of the quirks in the market for vacation homes. Many of these houses are up for sale because family members scatter, or because empty nesters or widowed owners move away. Long-term owners generally aren't faced with the need to pay off a mortgage, but they can still lose patience if the property sits on the market for a year or more.

When it comes to new construction, builders whose spec homes sit vacant have to get their money out or lose their investment to the bank. They may be willing to "donate" a well or build a driveway, saving you thousands of dollars.

Time is also on your side because the market shows no signs of reviving anytime soon. In May, Dave and Mary Jo Nelson hired an auctioneer to sell their large, pristine home on Big Sand Lake, near Hertel, Wis., which includes an acre of lakefront land. The Nelsons were angling for $399,000. But the highest bid came in at $355,000, and the Nelsons rejected it. They want to move somewhere "where it's warm and there's no snow," says Mary Jo, but they're still holding out for a better offer.

No Quick Killings

If there's any competition, it's at the low end of the market. Charlie Winfree, who sells vacation property in central West Virginia, says homes priced at less than $250,000 attract streams of lookers and even some buyers. But those selling for $350,000 or more -- which buys a showplace in West Virginia -- are all but ignored. Winfree's theory: Given the experience of the past couple of years, buyers don't trust that an investment of that size will hold its value.

Buyers are right to be cautious about price appreciation. Gone for now are the days of the quick killing or the huge price run-up. You can expect prices of vacation homes to track real estate in general, which over the long term tends to rise at about the rate of inflation. If your house comes with an attractive plot of land, it's apt to hold its value better in a bust and rebound more quickly in a healthy market, says Curtis Seltzer, author of How to Be a Dirt-Smart Buyer of Country Property.

Aside from deals on traditional homes, you can also look into a "shell cabin" -- a new structure with a finished exterior and utilities built to the property line but nothing else. Two years ago, shells were selling quickly for as much as $85,000. Now Pat Tomanek, a real estate agent in Siren, Wis., can show you a two-story, 1,200-square-foot shell on a generous lot near Crooked Lake for $59,900, down from the original asking price of $75,000. It'll probably cost another $75,000 to finish the structure if you hire out the work.

Once you've negotiated a good price, you should be able to get a mortgage to finance your purchase, especially if you start with local lenders in the community where you want to buy. Terms for second-home mortgages are about the same as they are for primary residences, which right now means an interest rate of about 6% on a 30-year fixed-rate loan. See What It Takes to Get a Mortgage Now. With tighter lending standards, you'll need a good credit rating and a down payment of 10% to 20%.

Discounts Down South

North woods not your style? Head south to Florida, where everything you've heard about the collapse of the condo market is true. In 2006, 9,800 condos were sold in the Miami area. Last year that number dropped to 5,700. Through the first four months of 2008, sales totaled just 1,100, and there's currently three years' worth of back inventory.

In the state's small towns, you'll find golf-course condos starting at about $200,000. In big cities, such as Miami and Fort Lauderdale, high-rise apartments with water views start between $300,000 and $400,000 -- and that's still a steal. Thanks to over-speculation, from 2002 to 2005 nearly 40% more homes were built in Florida than there were people to occupy them, says Bill Pittenger, chief real estate economist for Seacoast National Bank.Local agents estimate that prices have tumbled 20% to 30%, on average. That helps to offset the annual cost of property taxes and insurance, both of which hit hard in Florida (if you move there, consult an independent insurance agent).

Ritch Holben and Ken de Loreto couldn't resist the sun, the sand, the action or the great prices. Holben and De Loreto live full-time in the Berkshire region of Massachusetts, a vacation destination in its own right. But the long, sleepy winters leave them cold. So they recently made an offer on a one-bedroom condo in a new development south of Miami's design district for a little less than $200,000. That was close to the list price -- but way below the $332,000 an investor had paid for the rights to the property before the building went up.

The unit has a wraparound terrace and floor-to-ceiling coastal views, and it's five minutes from the beach. It's "designer-ready," meaning that Holben and De Loreto will have to install floors, ceilings and fixtures. But that's fine by them; Holben is an architectural designer, so they can put their own stamp on the place.

SLIDE SHOW: Vacation Homes on Sale