Home Values Measured In Memories

Imagine that you are sitting around the Thanksgiving table at your home on Kiawah Island, basking in the warmth of the grandchildren’s laughter. Every inch of the pool deck is bathed in sunshine as the cloudless sky prepares a canvas for a mimosa-colored sunset. Over the course of the meal, you may think about delayed flights and 12-degree wind chills back in the northeast. You may also think about how lucky you are to have come this far in life. But there’s one thing less likely to cross your mind – whether this spectacular home that brings so much joy as a gathering place for three generations of your family, has appreciated by two, 10, or 20 percent.

That’s a major reason Kiawah has historically been such a unique real estate market – its home owners insulated from much of the trepidation homebuyers elsewhere experience when the economy is no longer moving up and to the right. In the main, many, perhaps most, Kiawah buyers are not purchasing homes for their potential for appreciation. Instead they’re, acquiring a place first and foremost where they hope to create and enjoy a rewarding life first and foremost and lasting memories.

Research supports that this perspective is common to second-home buyers. James Chung, president of Reach Advisors, focuses on the buying motivations of the wealthiest half-percent of Americans. Chung says buyers look at second-home purchases as life enhancers, not quick investments. Although recent years of booming real estate markets caused many buyers to think that they would be able to make an overnight fortune on vacation homes, history shows the real value of second, third, or fourth homes lies in their ability to enrich life experiences.

Chris Drury, president of Kiawah Island Real Estate (KIRE) agrees. “I would distinguish Kiawah’s buyers as long-term investors, rather than speculators. Speculators, like the ones who flooded resort markets in California, Las Vegas, and Florida in recent years, are making purely business decisions.” Since speculators are only “in it for the money,” they focus on “flipping” opportunities, some buying multiple properties at a time. When a market begins to cool, they are more inclined to have cash flow issues and rush to sell quickly in order to cut losses. The market impact is negative because speculators are not emotionally invested. That makes a big difference in a local market’s potential and stability.

“Kiawah isn’t like that,” Drury says. “As a rule, our property owners don’t have significant cash flow problems. They have the commitment wherewithal it takes to weather economic ups and downs.” Experts say you won’t see much deep discounting on Kiawah as many sellers feel that if current buyers don’t see the extraordinary value in the properties on such a beautiful and special island, they will just wait for others who do. Drury says that in some resort areas where growth has been fueled by speculators, home values have regressed to early 2000 levels. “Those are the markets people should be worried about,” he says, “not a resilient market like Kiawah.”

Chung says, “Regardless of whether or not the market is good, as a class of real estate, vacation homes aren’t great for flipping. But if you’re going to use the home yourself, it’s the best money you can spend.”

Other factors related to demand also continue to favorably influence the Kiawah real estate market. The desire to own a second home is at unprecedented historical levels. Given that the Baby Boomer generation hasn’t even hit its financial or demographic peak, the trend promises to be self-sustaining for the long term. In 1993, two economists at Cornell University published a study predicting that Baby Boomers would experience an “Inheritance Boom,” inheriting a windfall of $10.4 trillion from their parents. Analysis of those findings in the years since suggests that “windfall” may not be accurate to describe an infusion of money inherited over four decades. Still, Baby Boomers and older adults have the highest average household income, and will get inheritances from the “saving generation.” They will ultimately have more to spend on vacation homes.

Kiawah’s historical real estate sales results reflect how strong and deep the market for second homes continues to be. With $369 million in closed sales in 2007, the fourth highest level of selling success in its history, Kiawah Island Real Estate has demonstrated that higher-end properties enjoy long-term stability despite market conditions. Nine Cassique Garden Cottages sold in 28 days in July 2007. All of the homesites in another phase of The Settlement closed, totaling $7.3 million in sales.

One thing is certain in both buyer’s markets and seller’s markets: every day you delay a decision to enrich life with a second home is a day spent delaying the opportunity to make memories. In two, four, or 20 years, the families gathered around holiday tables, sunning over spring break, and celebrating July 4th at the beach may not remember when they bought at Kiawah. They’ll just be glad they did.