Kent Busek recently decided to upgrade to a bigger cabin near Detroit Lakes, and his agent quickly found an ideal place along Lake Cormorant.
But look fast, his agent warned. Featuring three bedrooms, a great view and two fireplaces, the $500,000 house was already attracting offers.
Busek, a CPA from Fargo, wasn't surprised. "People just seem to have money," he said. "And it's disposable cash."
As home sales and prices rise by double-digits in the state, the momentum is starting to reach the large and long-stagnant vacation home market across northern Minnesota, stoked in some places by buyers crossing the border from North Dakota's booming oil fields and the farms of the Red River Valley.
In Cass, St. Louis, Otter Tail and Aitkin counties — the most active lake home markets in the state — the average price has increased 3 to 5 percent since last spring, according to Trulia, a national real estate research and listings firm. But it's the high-end vacation home that is seeing the biggest increase in demand.
In many popular lake destinations in northern Minnesota, sales of $351,000 to $500,000 homes have surged by more than 100 percent over the year, according to Bill Hansen Realty in Longville. Such activity is a clear sign, agents say, that well-heeled buyers are snapping up bargains.
"Vacation homes aren't a necessity — they're discretionary, and discretionary spending can take time to pick up after a recession," said Jed Kolko, chief economist for Trulia.
Indeed, the volume of second-home buyers is much lower than before the housing crash and recession, in part, because lending restrictions are much tighter than for those buying a primary home, agents say. Further, would-be buyers don't have as much equity in their first home that might finance the purchase of a cabin on the lake.
"Is it more difficult to get financing now? By a long shot and understandably so," said David Culbert, an agent and appraiser near Lake Vermilion.
The problem, Culbert said, is that some banks, often larger ones, don't know the market well enough to have faith in the investment. Further, second-home loans now require a 5- to 20-percent down payment, and underwriters remain more cautious.
"Vacation areas are not rebounding as fast as the housing market generally," Kolko said.
As a result, home buyers, especially those who can pay cash, are taking advantage of low prices to trade up to a larger second home.
Busek, the CPA who just bought a place near Detroit Lakes, said such situations aren't unusual, especially on the lakes and rivers in northwestern Minnesota where there's a growing swell of people with cash on hand from jobs and investments among the oil fields. About a year ago, he noticed a distinct increase in interest in buying a second home among his well-to-do clients.
"For them, financing is available," he said. "I just had a buddy who said he got a mortgage at 2.75 percent — that's free money."
Further, an oversupply of upscale houses built during the housing boom is available for far less than at the peak. There is a 10-month supply of outstate Minnesota lakeshore listings compared with three months in the Twin Cities, according to ReMax North Central.
That puts buyers, especially those with upscale budgets, in the driver's seat.
When Joe Westermeyer was looking to trade up from his 800-square-foot cabin on Girl Lake in north-central Minnesota, a friend told him about a place across the lake that had lingered on the market for nearly two years. The home had sweeping lake views and a stone fireplace, but it needed considerable updating.
"The people who have the money … don't want a fixer-upper," said Westermeyer, an executive in the Twin Cities.
The owner of the property, who had moved to Switzerland, spent about $70,000 to finish the basement, replace the appliances and update the bathrooms. Knowing that the seller was already losing money on the property, Westermeyer and his wife made an offer for only slightly less than the list price.
When the seller accepted, the Westermeyers put the modest place they had owned for 15 years on the market for $250,000. As sellers, getting a deal wasn't quite as easy. Before long, someone with a less-expensive cabin decided to take advantage of the market in the same way as the Westermeyers.
The offer? $210,000.
"I didn't enjoy being aggressively lowballed," Westermeyer acknowledged. "It was a bit of a slap in the face."
But knowing that the entry-level market for vacation homes is softer, he was reluctant to quash the deal. In the end, he accepted the offer and closed the deal on the larger house with a small guest cottage for just under $500,000 — a considerable bargain compared with what he would have paid five years ago.
"Ultimately, when the day was over," Westermeyer said, "I knew I held the cards."