Article in July 7, 2006 Wall Street Journal

Latest Sign in Summer-Home Markets: Vacancy

With Rental Inventories Up,Owners Start Making Deals;In Cape Cod, 25% Discounts

By CHRISTINA S.N. LEWIS

In summer-rental spots around the country, a number of houses sit vacant and owners may be ready to make a deal.

Many agencies say they are offering discounts for the last two months of the season. Prices have dropped by as much as 25% in Cape Cod, Mass. In New Jersey's oceanside-resort towns, where rental volume has fallen about 15% since 2003, Childers Sotheby's International Realty is giving discounts of as much as 25% for some homes. In South Carolina, Hilton Head Rentals & Golf has cut 15% to 20% off its remaining one-to-two-bedroom listings.

One factor: oversupply. In Aspen, Colo., Five Star Destinations added 30 properties this summer, for a total of 100. Occupancy is about 80%, from full last year. Nationwide, rental inventory is up 12% this year, mostly due to new second-home construction, says Michael Sarka, executive director of the Vacation Rental Managers Association, of Santa Cruz, Calif. The Travel Industry Association of America, of Washington, D.C., expects leisure travel to increase by less than 1% this year.

Early bookings were strong in a few popular areas, but agencies say more travelers have waited to plan their trips, a dynamic some link to a rise in Internet sources that allow last-minute reservations. A few years ago, homes filled up early, says Renée Gardner in Union Pier, Mich., who manages 40 homes along Lake Michigan. "In February, we'd be hoarse from talking on the telephone. Now people are calling up today and wanting a week starting tomorrow," she says. In Lake Geneva, Wis., Keefe Resort Rentals is 35% vacant for July and August. It is waiving weekly minimums and allowing last-minute stays of two and three days. "This year, people weren't prebooking," manager Theresa Larsen says.

Oiyin Gonzalez started looking in mid-June for a rental in July. After browsing online, she found a 25% discount on a new three-bedroom home that's three blocks from the boardwalk in Ocean City, N.J. It's regularly $1,590 a week. "We lucked out," says the homemaker from King of Prussia, Pa., though she adds the last-minute search was "kind of stressful."

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Of course, renters may have to be flexible on dates and amenities. The homes that haven't been rented are often older and have fewer features like pools. In Lake Geneva, large lakefront properties are scarce, but smaller homes inland are available. The most desirable waterfront estates in the Hamptons in New York began booking seven months ago, but some places on the ocean are open for August.

And procrastinators are out of luck in some spots. There's only one sandy beachside rental available at Coldwell Banker in Malibu, Calif., for August, compared with 50% occupancy last summer. Sand N' Sea Properties on West Galveston Island, Texas, is nearly completely booked, says owner Bert Feinman, thanks in part to a new water park in town. Last summer, the agency had a vacancy rate of 30%.

Below, a look at what's available in five areas.

Outer Banks, N.C.

It's a renter's market in this family-oriented destination. Sales inventory has more than doubled since 2004, says Louanne Woody, president of the Outer Banks Association of Realtors. Rental occupancy is down about 8% this summer, estimates George Volsky, a vacation-rental management-industry consultant in Avon, N.C. Hatteras Realty, which manages 500 homes on Hatteras Island, N.C., is about 88% booked for July and August, down from 90% last year. It's offering incentives like complimentary charter-fishing trips and 20% discounts.

Sun Realty, which manages 1,600 homes, is taking up to 25% off some rentals booked within four weeks. In Nags Head, N.C., weekly rates include $4,000 for a large house with a pool and indoor theater that is near the beach. A six-bedroom lakefront house in Avon, with a heated pool, was cut to $2,695 a week, from $2,995.

Berrien County, Mich.

Discounts are rare in "Harbor Country," the Lake Michigan beach community of eight towns that's about 70 miles east of Chicago. However, the addition of hundreds of homes during the past three years has kept rents steady. Agencies say occupancy is about 92% for the rest of the summer.

Large lakefront rentals and homes with pools are nearly all taken, but four- and five-bedroom homes a block or two from the beach are available for about $3,000 a week. A smaller cottage inland can go for $1,000 a week.

Lowell Smith, a strategy consultant in Chicago, wants to rent his three-bedroom home in Lakeside, with private lake access, for eight weeks this summer. As of last week, three weeks had been filled. His agent suggested that he lower the price, at $1,700 a week, due to new construction in the area, but he refused. He has since booked three more weeks.

Cape Cod, Mass.

Waterfront homes are available throughout Cape Cod, with owners cutting prices by as much as 25%.

Last summer, rainy spring weather and a red-tide outbreak that shut down the shellfish industry put a damper on rentals. While agencies say bookings are up this year, inventory is also up, due to a sluggish real-estate market that has led sellers to put their homes up for rent. At Kinlin Grover GMAC, rental properties are up 10% this year, to 850 listings. "We have a lot available right now," says Kerry Adams, rental manager at CapeCodRentals.com.

One three-bedroom cottage in West Harwich, Mass., that's a five-minute walk from the ocean is $1,600 a week in August, down from $1,850. On the bay side, in Brewster, Mass., a four-bedroom home that normally costs $2,995 is $700 less for the last week of July.

Orange County, Calif.

Don't expect many deals in the coastal towns an hour south of Los Angeles.

In Newport Beach, Balboa Newport Realty raised rates 5% this year. Occupancy is up 8%, and nearly all of its 150 units are filled, broker Karly Brown says. On nearby Balboa Island, which has 1,400 houses total, Abrams Coastal Properties is 93% full. A three-bedroom house with a dock is $8,250 a week, and two-bedroom homes are available for $1,700 to $2,400 a week.

There are more vacancies four hours north, in rocky central California, where the climate is cooler. A beachfront home in Cambria, Calif., runs $325 a night, says agency Coastal Escapes.

Hamptons, N.Y.

Despite a strong rental season -- revenue rose as much as 25% at some agencies this year, helped by a warm spring -- properties are available, mostly for August. Sotheby's International Realty has a few listings on the water. One four-bedroom oceanfront cottage in East Hampton, N.Y., is open in August for $85,000.

Corcoran Group's 12,000 rental properties are about 75% filled, up from about half last year, says Rick Hoffman, a vice president. Stock is mostly limited to smaller homes, some with a pool, in the estate section south of the highway or in the more-wooded area north of the highway, for $20,000 to $100,000 a month.