Rosalie Murphy, The Desert Sun - April 27, 2017
Candy Cook, Jim Sheerin and their tiny dog, a Yorkie-Shitsu mix named Molly, are ready to downsize.
They've owned a 3,500-square-foot home on a glimmering artificial lake in Rancho Mirage for 13 years. The Boston and Southern California natives also had homes in Lake Havasu and Washington's San Juan Islands, to which they'd fly Sheerin's plane for long weekends. Sheerin is retired from an auto parts company; Cook, his wife, now runs a Palm Springs car wash.
"Sometimes when you have more money than you need, you just buy another house," Sheerin said.
The house on the lake is a "toy" for the couple, as houses are for thousands of desert buyers, Coldwell Banker Residential Brokerage Realtor Geri Downs said. Here, buyers "want something really different from their lives... they can live differently, or they can decorate very differently," Downs said. "It's something to play with."
About 85 percent of homebuyers in Rancho Mirage, a wealthy hamlet near Palm Springs, come from elsewhere, according to her brokerage's records, Downs said. More than half come from coastal Southern California - Orange County, followed by Los Angeles and San Diego - and behind them, a steady trickle of buyers from the Pacific Northwest, Midwest and western Canada. A handful come across oceans, including from Germany and China, Downs said.
Rancho Mirage is one of five cities in the Coachella Valley that numbers among California's top ten vacation home cities, according to Census data. The others are Indian Wells, where 41 percent of homes are used "seasonally, recreationally or occupationally," Palm Desert, La Quinta and Palm Springs.
Michael McDonald, principal at real estate advisory firm Market Watch LLC, estimated in a recent study that remote buyers, including investors, snowbirds and weekenders, own about 53 percent of the homes in the Coachella Valley.
Those homes include 60 percent of the desert's property value, since part-timers generally have bigger budgets than owner-occupants, according to McDonald's metrics. Further, they buy and sell homes more often, meaning remote owners are responsible for about 67 percent of all the money spent on real estate in the region.
Nationally, vacation home sales are slowing, according to data from the National Association of Realtors. Sales dropped by more than a third between 2014 and 2016 as home prices rose. But in the California desert, vacation home buyers continue to underpin real estate, which is one of the region's most significant industries.
The desert's metrics have been steady for around four years, McDonald said, which encourages him.
"This, I think, is a positive thing - they're not leaving," he said.
The desert dominates California's second home markets
According to data collected by the U.S. Census Bureau, of the 10 California cities with the highest proportion of homes used "seasonally, recreationally or occasionally" - that is, for vacation - five were in the Coachella Valley.
Those cities were:
- Big Bear Lake, where 71.4 percent of properties are vacation homes
- Indian Wells, 41.8 percent of homes
- South Lake Tahoe, 39.1 percent of homes
- Carmel-by-the-Sea, 38.3 percent of homes
- Rancho Mirage, 32.7 percent of homes
- Palm Desert, 30 percent of homes
- La Quinta, 29.4 percent of homes
- Avalon (on Catalina Island), 29.4 percent of homes
- Palm Springs, 27.5 percent of homes
- Pismo Beach, 20.8 percent of homes
Many unincorporated areas have high rates of vacation homes, including Lake Arrowhead, Idyllwild and Mammoth Lakes. This list is limited to incorporated cities.
G. U. Krueger, founder and president of Los Angeles consulting firm Krueger Economics, warned that local economies reliant on the second-home market can face more volatility than others. But they can also bounce back faster, as outside investment rushes in.
"When the market comes down, the snowbirds stay away, the investors come in," Krueger said. "Then the economy starts to recover, the stock markets recover, and suddenly the snowbirds are coming back and the investors are retreating. It's kind of a push and pull," Krueger said.
Investors and second-home owners are increasingly one and the same,said Gary Pisula, a real estate agent with Leaskou Partners who sells primarily to clients from San Francisco and coastal California. After the Great Recession, he thinks buyers got a little younger - they started buying homes before they retired, in hopes of taking advantage of low prices - and then turned to the vacation rental market to help pay their mortgages.
Pisula estimated that 80 percent of his clients buy homes before they retire.
"How (buyers) purchased the property and how they structured their living arrangements here really did change dramatically" after the recession, Pisula said. "The second home was turned into a vacation rental. Three to four years, then retire full-time, that's the new business model."
Nationally, 44 percent of remote owners rented their homes out in 2016, and 29 percent plan to do so again in 2017, according to a survey from the National Association of Realtors.
The desert is also affordable compared to coastal California, which may lure buyers. The same National Association of Realtors survey found people tend to spend less on vacation homes than primary residences, according to Jessica Lautz, managing director of survey research and communications. The organization has been tracking the difference between vacation home and primary residence prices since 2007, and every year, vacation homes have been cheaper.
According to Market Watch figures, remote owners only own about a third of homes worth less than $300,000, but own about 80 percent of homes worth more than $1 million. Each remotely-owned home in the Coachella Valley is worth about 1.13 times as much as each owner-occupied home, McDonald said.
However, homes in the San Francisco Bay area sold for a median of $837,720 in March, according to the California Association of Realtors, compared to $335,660 in the Inland Empire.
How part-timers shape full-time life
Vacation home owners help shape the Coachella Valley's economy. But Pisula, who moved from San Francisco to Palm Springs 16 years ago, believes they also shape its culture.
"The people who bought (houses) here in the 80s and 90s, from very sophisticated environments, they had certain expectations of what they wanted here. When they gentrified the city, suddenly - little theater companies, art galleries, coffee shops, things people expected to have here because that's what they had back in their sophisticated environment in the big cities," Pisula said. "A small-town environment and a very sophisticated environment at the same time, that's very unique. I don't know where else in the U.S. you have that feeling."
National Association of Realtors data show that more people have begun buying primary residences in the last two to three years, reducing the proportion of sales that go to second-home buyers. Investors were active during the foreclosure crisis, buying up some houses that might've become weekend pads.
Generally, economist Krueger said, second-home buyers in the desert don't compete with locals for lower-end properties, because there are so many high-end houses to buy.
"Second-home buyers are in a higher-end market than the local buyers," Krueger said. "I wouldn't necessarily say that the remote buyers are stealing supply from local buyers. It all depends on what's available."
Pisula believes recently added direct flights to New York and Toronto will bring a new crop of high-end buyers to greater Palm Springs. Geri and Steve Downs, the Coldwell Banker real estate team, recently began marketing desert properties worldwide through a firm-wide marketing program, Global Luxury.
Though Cook and Sheerin, the Rancho Mirage couple, started out as part-timers - Sheerin bought his first desert house in 1958 and Cook relocated from Boston in 2001 - they now live here year-round. Their next stop will be a smaller house, around 2,400 square feet, in a nearby age-restricted community.
Cook and Sheerin said their house was all about relaxation, but they do stand to make money. According to public property records, they purchased the house for $804,500. It's listed at $1.349 million.
And as of April 14, the Downses said they had closed seven transactions with an eighth in the works, totaling $12 million to $13 million, in 2017.
"This is a place where people come to enjoy themselves. Our clients, they're not looking for a home where they're going to move in with the dog and the 2.5 kids," said Steve Downs, Geri's husband and business partner. "They're looking at the getaway place where they can really enjoy life. That's our buyer."