Second-home values have held up much better in Minnesota than primary residences have during the real estate downturn.
Mike Stanwood stood at one of his listings on Big Sandy Lake in McGregor, Minn. with the homeowners Linda and Woodrow Holder in the background on Tuesday, August 16, 2011. The property is on prime shoreline which is what sells lakeshore homes.
If you're looking for a sanctuary from the housing downturn, a Minnesota lake cabin is as good as you'll find.
While home values in Minnesota plummeted 10 percent from 2006 to 2010 -- the worst of the housing downturn -- cabin values increased a surprising 8 percent, according to the Minnesota Department of Revenue.
Some speculate that cabins have fared better because of the deep connection Minnesotans have to the lake, even during the worst of economic times. Resort communities have also been much less affected by foreclosures.
"It might be something about the nature of the economy, where hard times didn't hit people equally," said Eric Willette, director of property tax research for the Department of Revenue. "And maybe there were more people blithely going along and buying cabins because they were not affected by the downturn."
Cabins -- second homes intended for recreational use -- haven't been immune to the downturn. Thousands of second-home owners have lost their properties to foreclosure, and many thousands more have been forced to sell for less than they paid at the peak of the market.
In fact, while second-home values continued to increase in 2006 and 2007, they have started to slip in the past two years. Cabin values dropped 1 percent from 2008 to 2009 and 3.6 percent from 2009 to 2010.
But they still held their value better than primary homes, which were down 5 percent from 2008 to 2009 and 6 percent from 2009 to 2010.
Across the country, the trend is different. A report from the National Association of Realtors found that prices on vacation homes nationwide were down 11 percent from 2009 to 2010, more than twice the rate for primary homes.
In Minnesota, the Revenue Department data reflect all property records in the state, not just for properties that have sold. "This fairly accurately says what the overall market would say," Willette said. "But some markets are stronger than others; some have gone down a whole lot more."
In the Alexandria area, a bustling collection of small and midsize lakes two hours northwest of the Twin Cities, sales of lake homes during July rose 40 percent. The sale price of those properties, however, was down almost 16 percent. Prices of properties not on the lake fell half as much.
Paula Jackson, a sales agent with Re/Max Lakes Area Realty in the Alexandria area, said the area has a well-developed local economy with lots of jobs that help create demand for properties. Still, she said that even though the local economy is healthy and diverse, some people are being forced to sell.
"Economic factors play into why people are selling," Jackson said.
Aside from general economic conditions, the biggest challenge for house values is foreclosures, which have been concentrated in the Twin Cities metro area.
For the most part they've been much less of an issue in areas of the state that attract second-home buyers. In fact, the three counties with the highest levels of seasonal residents in Minnesota had some of the lowest foreclosure rates in the state, an indication that property owners in those areas have the wherewithall to weather the downturn.
Nearly 20 percent of the residents in Aitkin County live there part time, according to Dan Hylton, research manager for HousingLink, an organization that tracks foreclosure activity in the state. The foreclosure rate there was only 0.15 percent of all households, he said, half the statewide average.
Mike Stanwood, an Aitkin, Minn., real estate agent who specializes in lake homes, said buyers and sellers in the area have always been relatively conservative and that they didn't bid up prices there the way they did in some areas. "This market never went crazy," he said.
Still, in retrospect, sale prices are much lower than he would have expected them to be when the economy started to slide several years ago. "But I think it's now leveling off," he said.
Lack of financing
While Stanwood and others see some signs of improvement, the biggest threat to a broader recovery in sale prices going forward is access to credit. Getting financing for a second home now requires a much larger downpayment and perfect credit, something many borrowers don't have today. And that means the pool of prospective buyers is dwindling.
"This summer has been pretty slow," said Barb Swenson, marketing director for Odyssey Resorts and Development, which has projects along the North Shore of Lake Superior and on Leech Lake. Swenson said that many buyers today aren't able to tap into the equity they had when prices were higher, reducing the options for those who haven't saved a downpayment.
That means developers have had to scale back their development plans. Odyssey isn't going to move forward with its plans for future phases of its Trappers Lodge project on Leech Lake until the economy improves and sales increase.
"It's as much financing as it is anything else," she said.
Limited access to financing has put particular pressure on upper-bracket lake homes, which some agents say are much more difficult to sell than those in the $200,000-to-$400,000 range. And that means many upper-bracket lake homeowners are in limbo.
Linda and Woody Holder have lived on Big Sandy Lake in Aitkin County for several years in their "dream home," a 2,800-square-foot house with a big yard and a guest cottage. Woody Holder built it all by hand.
Originally from California, the Holders planned to spend summers there with their grandkids and travel for part of the year. Things didn't go as they expected. They got older, didn't have grandchildren and the upkeep on the all-wood house is getting to be too much.
Linda still loves to ride her water scooter and putter around in her gardens, which she says attract people from all over the lake, but they know it's time to move on. Since listing the house for almost $850,000 in May, they've had nearly 900 inquiries in various places. Still, not a single offer.
"The minute they hear the price, that's it," she said.
Their hope is to relocate closer to their children, but Linda said that if they don't get an offer or get an acceptable price, they'll simply stay put until the market improves and continue spending six months out of the year on the road.
Jim Buchta • 612-673-7376