Is now the time to buy the vacation home of your dreams? That cottage by the lake, in the woods or on a golf course is a lot more affordable than it was five years ago.
The inventory of vacation homes for sale has risen to historic highs in some sought-after areas in the Midwest. But the bottom of the market may be near as the supply of bargain properties dwindles.
Still, reduced prices have opened a window of opportunity for potential buyers to get into the second-home market, said Karen Strohl, a broker with Prudential Rubloff's Harbor Country office in southwest Michigan. "For the first time, they are able to afford a vacation property."
Strohl estimates that 90 percent of second-home buyers in Harbor Country are from the Chicago area.
"The selling season for vacation homes is in September and October," said Strohl. "That's when sellers drop prices."
Of course, second homes are a luxury item for those with disposable assets. But money isn't the only factor when it comes to purchasing a place to kick back and relax.
"Buying a vacation home is more of an emotional decision than an investment decision," said Tom Drake, president of The Drake Group, a homebuilder in Glenview. "Today's buyers aren't looking to flip the property in a year or two."
Strohl has noticed some baby boomers are renovating their vacation homes for year-round living. "They used to be just summer places," she said.
Drake has built vacation homes in Harbor Country, the 15 miles along Lake Michigan in Michiana, Grand Beach, New Buffalo, Union Pier, Lakeside, Harbert and Sawyer.
Besides Michigan's western shore, other popular vacation home spots for Chicagoans include Wisconsin and the northwest corner of Illinois.
"Harbor Country is a total mental and physical beach for me," said Sharon Ellingsen, who with her husband, Rick, bought a two-bedroom house in Harbert last year.
Although their permanent home is in Southern California, a vacation destination in itself, the Ellingsens were attracted to southwest Michigan because Sharon Ellingsen's brother lives in Lakeside, and she's a Midwest native who loves the dramatic change of seasons.
"We will use the Michigan home about eight weeks a year in all four seasons," she said. "By California standards, it was a bargain. The wooded lot creates the illusion of seclusion. My soul is at peace there."
Strohl noted that houses in Harbor Country that used to be $450,000 have dropped to $300,000.
"Those near the beach range from $250,000 to $700,000, while the 40 lakefront houses now on the market range from $1.3 million to $8.6 million," she said. "Some of these lakefront properties have already dropped in price by as much as $2 million."
Sales of vacation homes fared better last year than sales of primary residences, according to HomeAway.com, a leader in online vacation rentals.
Research by HomeAway, as part of the National Association of Realtors' 2011 Investment and Vacation Home Buyers Survey, showed that 38 percent of buyers purchased vacation homes last year because of lower prices.
Nationally, the median price of vacation homes was $150,000 in 2010, down 11.2 percent from $169,000 in 2009, according to the survey. The main reasons for buying included the desire for a family retreat, the potential for price appreciation and low mortgage rates.
The typical buyer of a vacation home in 2010 was 49 years old, had a median household income of $99,500 and purchased a property that was a median distance of 375 miles from his or her primary residence.
"Vacation homes are more attainable than ever for consumers of all ages, thanks to attractive prices and the fact that people can rent them to travelers to help offset costs," said HomeAway Chief Executive Brian Sharples.
About a third of buyers in Saugatuck, Mich., for instance, put their second homes in a rental pool, said to Laura Durham, owner of Mill Pond Realty in Saugatuck.
Up the road from Harbor Country, Saugatuck has been a powerful magnet for Chicagoans because of its trendy boutiques, art galleries, yacht harbor and beaches.
"Prices in Saugatuck are down 23 percent or more from their peak," said Durham. "Now there aren't many foreclosures left, and when they go on the market, they sell in a week. Prices range from $95,000 for a one-bedroom on the waterfront to $1.3 million for a house on the harbor, but the average is $375,000."
Six years ago, Northbrook residents Gerry and Suzanne Noonan bought a four-bedroom vacation home at Eagle Ridge Resort & Spa in Galena in northwest Illinois. The resort is nestled in the 6,800 rolling, wooded acres of Galena Territory, a planned residential and recreational community. Eagle Ridge has four golf courses, a lake and 2,205 dwellings, including 1,752 vacation residences.
"It's one of the most gorgeous parts of the state, more like North Carolina than Illinois," said Gerry Noonan.
The couple put their home in the rental pool the first year and broke even. But Noonan stressed the rental pool comes at a price:
"You are required to have a landline telephone and cable TV," he said. "Plus, there are the usual expenses of maintenance, association fees and taxes, all subject to increases."
The popular destination will have few, if any, foreclosures left by the end of the year, said Mike McCoy, managing broker of McCoy Real Estate Services in Galena. He noted that 80 percent of buyers are from the Chicago area.
"In the first half of this year, 142 houses on the market were listed at an average of $283,000 and sold at an average of $233,000," McCoy said.
Door County, Wis., often called the Cape Cod of the Midwest, is another hot vacation home spot for Chicagoans.
Connie and Bob Erickson, owners of Door County Realty, described the county as a blend of civilization and wilderness. "Those who buy vacation homes here have discretionary income and are looking for a family experience. We get 58 percent from the Chicago area," said Connie Erickson.
Some 220 waterfront and 650 inland properties are available in the northern part of the county, including Ephraim, Fish Creek, Sister Bay, Ellison Bay and Gills Rock, she said. Despite the high number of available properties, prices have declined only 5 percent to 10 percent in the last two years.
Dennis Starr, co-owner of ERA Starr Realty in Door County, affirmed the county has an oversupply of vacation homes, but he said prices have not fallen drastically like they have in Florida, Las Vegas, Arizona and California.
He noted that younger families tend to buy on the Green Bay side of the peninsula, while more affluent retirees favor the Lake Michigan side.