Beach Real Estate Caught in an Undertow

Beach Real Estate Caught in an Undertow
Along Delmarva Coast, Buyers Are Scarce and Tourism Slows Slightly
By Anita HuslinWashington Post Staff WriterMonday, August 6, 2007; Page D01
REHOBOTH BEACH, Del. -- The "no vacancy" signs outside hotels, sunburned families packing boardwalk amusement rides and thousands of students working in surf shops and souvenir concessions along the avenues suggest that the beach economy is booming this summer.
But to a newly minted real estate agent, just six months into the job, the hottest and sunniest days are also the most frustrating signs of a different economic reality: one spent hours on end sitting in model homes and waiting for buyers, who are harder to find this year.

Bruce E. Plummer, left, of Coldwell Banker and Pat Campbell-White, right, with Re/Max Realty showed a Rehoboth Beach condo to Susan Gordon, center. With sales falling in the region, the developer is offering to pay Gordon's mortgage for six months, plus other incentives, if she buys. (Grant L. Gursky)
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If 2006 was the year the boom market began to fade, 2007 is shaping up to be the year that beach communities along the Delaware, Maryland and Virginia shorelines see their economic engines -- largely driven by tourism and real estate -- downshift from overdrive, economic and tourism analysts say.
That means job and income growth is slowing, vacations are being scaled back, and real estate opportunities have shifted in favor of buyers.
For Steve Conlon, who graduated last year from the University of Delaware with a degree in criminal justice but then decided to join his mother in selling real estate, any notion of boom times might as well be a dusty historical reference. He's a sales representative for two new residential projects on the edges of this popular beach town. To lure buyers and ameliorate losses, developers have slowed their pace of construction, dropped prices, advertised upgrades as standard features and then offered discounts on land they haven't built on yet.
Between the four days a week he or another agent sits in the sales office of Heritage Village and the seven days a week they staff the Seasons, they've sold three units this summer.
On a slow afternoon last week, he checked out the competition -- a cement-clad bay-front hotel in nearby Dewey Beach that has been converted to condos. The developers are offering to pay the 3 percent real estate transfer tax, homeowner association fees for two years, a free boat slip for two years and then a 20 percent discount. Plus, they're guaranteeing owners will get at least $12,000 for the rental of their unit each year.
"The market got soft," the young saleswoman said with a shrug, pointing out the rooftop swimming pool. It was her first day on the job and she was sanguine about the market. "It was a choice between working here or in Milton," a nearby village of fewer than 2,000 people. "I thought, hmmm, I can sit in an office there, or be here and look at the bay all day."
Of the 17 condos sold in Dewey Beach the first five months of the year, seven were in this building, she said. A couple walked through and left with a price list. One person signed the guest book. It was the saleswoman.
This year, Sussex County, where Rehoboth and Dewey Beach are located, collected $13 million less in transfer taxes than last year, according to the recorder of deeds. At the same time, hotels, motels and bed-and-breakfasts sold 6.3 percent fewer rooms than during the first six months of last year, according to an analysis by Smith Travel Research, a firm in Hendersonville, Tenn., that tracks hospitality-industry statistics.
In the Hampton Roads-Virginia Beach area, the value of single-family homes for which building permits have been issued declined about 16 percent, according to an analysis by Old Dominion University. On the other hand, hotel revenue has increased about 12 percent, Smith Travel data show. In Ocean City, the pace of development has slowed considerably; the city has approved new construction worth $69.9 million for the first seven months of the year, down 32 percent from $102.6 million during the comparable period last year. And though the city's hotels reported a 4 percent increase in revenue, occupancy fell during the first seven months of the year.
"Some would say that business is great from looking at those numbers; however this is truly not the case," said Susan Jones, executive director of the Ocean City Hotel-Motel-Restaurant Association. "Several small properties were torn down and larger, newer facilities built in their place."
The trends, at least in the real estate market, are working in the favor of Susan Gordon, a former Bethesda resident in the market for a condominium or townhouse in Rehoboth. She is a sure buyer, within a field of lookers these days.
She's considering a property along the canal, Blue Point Villas, where the developer is offering to pay her mortgage for six months, plus six years of condo association fees, $5,000 toward closing and a 15 percent "developer closeout" discount on the sale price.

Bruce E. Plummer, left, of Coldwell Banker and Pat Campbell-White, right, with Re/Max Realty showed a Rehoboth Beach condo to Susan Gordon, center. With sales falling in the region, the developer is offering to pay Gordon's mortgage for six months, plus other incentives, if she buys. (Grant L. Gursky)
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"Builders are getting so low on prices, it's getting down to materials," Conlon said. "They're already dropping prices 20 percent, then people come in and think they're going to get 25 percent off that."
Vinod Agarwal, an economics professor at Old Dominion University who studies the tourism economy in the Virginia Beach area, estimates that sellers are overvaluing their properties by at least 10 percent, presumably assuming that the market is what it was a year and a half ago.
As a result, properties are on the market longer and often going for less than what sellers are asking, echoing broader trends in the housing sector nationwide.
This disconnect will realign, said Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic research firm, though it may take some time. It could take even longer in beach communities like Rehoboth, Ocean City and Virginia Beach, where tourism is fueled by real estate, and sales of second homes are generally luxury purchases, analysts and real estate agents said.
Tara Zaiser, a Realtor with Prudential Carruthers whose ex-husband owns an umbrella concession business in Ocean City, said the talk on the street is that crowds are down -- an impression borne out by the city's monthly population estimates. There's also a sense among locals that more tourists are renting condos, which have kitchens, suggesting that visitors eat out less often, she said.
"Talk to people who've owned businesses for years and years and years, and they will tell you that people are just holding onto their money a little more," Zaiser said. "So if real estate is down, then the hardware stores are down. And if hardware stores are down, those people are not going to the deli for lunch."
Since beach communities rely on outsiders to bring in money, their economies will continue to reflect what's happening in areas they draw from, Basu said.
Earlier this year, realizing that many of her clients were looking but not buying, Zaiser found work in another industry.
"When you don't sell houses, you've got to do something," she said. "I'm doing ad sales for a local newspaper. It's not something I like to tell people. It's just something I do to pay the bills."