During periods of growth and expansion it’s easy to superficially judge the health and supposed underlying strength of a particular vacation home market. You can look to the sales and the median valuations, to the inventory and the absorption rates. During the good times, markets are judged by these measurements. A strong market will have sales and a weak market will not. Often times, it’s just that easy. Properties will appreciate and, at least on the surface, the market will look solid. Then crisis comes and we figure out what’s really happening under the surface. Sorry, vacation home markets everywhere, you’re being exposed.
There was an article in the Wall Street Journal on Monday with a remarkably clunky title “Homeowners Relying on Short-Term Rental Income Stung By Wave Of Coronavirus Cancellations”. Never mind that I prefer the single L version of cancelations, I read the article even though I didn’t have to. The headline said it all. The headline makes it sound like the homeowners are the ones hurting, when in fact if a homeowner is hurting because of a weak hand then the market itself is the thing that is most impacted. Markets (looking straight into your erosion sensitive eyes, Harbor Country, and you too, Door County, with your Cherry stained fingers and your fake-flamed, boney, bland fish boils) that rely heavily on vacation home rentals are suffering, and while I can sympathize with those owners and their markets, I think we’d be foolish not to address the markets that have thrived based largely on an ownership group that often purchases properties they can’t afford without the aid of vacation rental income.
Should we laugh at their misfortune? Of course not. But should we recognize that markets that found their growth fuel simply because their communities lack tight short-term rental restrictions are not as strong, or safe, as markets that were fueled solely by wealthy individuals and their desire to actually vacation in their vacation homes? This should be obvious, yet somehow it isn’t. A market that caters to a vacation home owner is not the same as a market that caters to a vacation home landlord. A market that caters to the owner is going to withstand this short-duration downturn for the exactly the reason that the vacation home market filled with landlords will stumble. When this dust clears, which market do you want to be aligned with? The market that needs income to support the price increases of the past decade, or the market that was never built on these fickle rentals anyway?
Lake Geneva has famously battled with short term rental owners. Many of them find the local rules onerous or otherwise difficult. Neighbors complain when other neighbors plug in a seasonal rental or two. This has always been incorrectly viewed as a negative for our market. In fact, this focus on the owner is exactly why Lake Geneva is stronger and more stable than all of the other vacation home markets. It’s a market built for the owner. At times, Lake Geneva will lose buyers to markets built for the vacation home landlord, but during this crisis it has become painfully obvious which market is built on the stronger foundation. In the good times, every market looks the same. In the bad times, weakness is very hard to ignore.