I don’t work in a vacation property market, so this is not a sales pitch in any form to convince you to buy vacation property in 2023. These are my observations as an owner of a vacation property. This is a series of posts speaking to fluctuations in property value, how to buy vacation property, when to buy, managing property maintenance and the option/decision to rent your vacation property.
Vacation Property Values Are Not in Line with the Residential Market
I was inspired to share my thoughts on the value of vacation properties in 2023 when I saw values peak in 2022 and then stagnate in my little vacation community. It’s an area with full time residents but more than half the properties are owned by families who live elsewhere. Nearly all the Buyers from the past two years have purchased for vacation use.
I’ve been wondering when prices will start to go down and how far down they will go. The increase in value in 2021 was extremely sharp. There were virtually no listings made available for purchase in 2020. Demand was boiling over behind the scenes during lockdown. The first property to hit the market was in early 2021. The Sellers reached very high with their price and sold in a day. It set the benchmark for all subsequent sales. Property values pretty much doubled from 2019 to 2021.
One after another, (through 2021 and 2022) properties came up for sale at record prices and sold within days. There was so much demand and extremely limited supply. Vacation property owners didn’t want to part with their private oasis, just a few hours from the city. Time has passed. More properties are available for sale and the most committed and deep-pocketed buyers have made their purchase. Basically, demand is down and supply is up. We’re talking about very small numbers, but enough to influence property value.
This little walk down memory lane applies pretty accurately to all vacation communities in British Columbia. I was watching the market and saw these trends from 2014 to 2022 on the Sunshine Coast, Bowen Island, Vancouver Island, etc. and all the lakeside and riverfront communities of the Southern Interior.
My Vacation Property Purchase in 2016
It has my attention because it reminds me of my purchase. I bought my vacation property in 2016. It was the Victoria Day long weekend and there were several properties available that had been on the market for months. We got to tour a few and actually choose the one we wanted – or so we thought. I had been watching that market for years. I could see that it was in a low spot, very stagnant and I happened to have the means to make a purchase that year. I wasn’t the only one to see the opportunity.
We viewed 3 properties within our budget that weekend but by the time we got there one was sold and another had someone preparing an offer. The one left was the most expensive. Lucky for us, my wife and I liked it more than the others. It was the biggest lot, on the best street and it was the most private. We negotiated for several days. The Seller just would not move to a price that we thought was in line with the market. Eventually, we found agreement.
My big revelation was when I later discovered that our purchase price was LESS than what the Seller paid for it in 2008! And that, my friendly audience, is the big takeaway. Vacation property value does not fluctuate in line with the residential market.
Comparing Sales History
For historic reference, the benchmark price for a detached home in Greater Vancouver in May 2008 was $820,000. It was $1,735,000 6 years later in May 2016. Residential properties had been steadily climbing while vacation property value dropped!? My property value saw some incremental increases over the years. It was up maybe 15% from 2016 to 2019. Meanwhile the benchmark price for a detached home in Greater Vancouver dropped 19% from its peak in July 2016 (Fun-Fact: that’s when the Foreign Buyer Tax was introduced).
2020 is when the paradigm shifted. Remote work expanded demand to new communities. Work from home created the need for a home with office space. Families saw success, opportunity and low interest rates. Vacation property values surged.
Value Today and What it Means to You
That’s all history. What does it mean if you buy vacation property in 2023? Don’t count on value moving with the residential market. Buy a vacation property because the numbers work for you and you plan to use it (or rent it). I don’t recommend you buy it expecting significant appreciation. Residential real estate will probably perform better.
An important distinction is when the line between residential and vacation gets blurred. You’ll know when you’re in a more residential market rather than a rural, vacation market and if that’s the case, the trends will be very different. You’ll also be competing with residents when you buy, which will make it much more expensive than the rural alternative.
I didn’t buy my property with high hopes for appreciation. I saw the benefit from paying the mortgage, calling it my vacation budget and watching 70% of it go against the principle. My vacation dollars were also building my long term wealth. My family had a special place to gather. We could afford it and it made our lives better. It was an investment in our relationship, which has appreciated far more than dollars on a ledger and that’s the only return on investment we really need (corny but true).
Buying your own vacation property can happen quickly if you find just the right place. The next part in this series will touch on the pros and cons of different locations. It’s important to understand and consider access, utilities, and nearby resources.