Wellesley, February 20, 2007--After years of tumultuous change, the Cape Cod and Island vacation rental market has stabilized! Instead of reporting on the shocks caused to travel by September 11, or tracking the astounding growth of the Internet as where vacationers go to plan their vacations, or seeing the mad rush to buy and rent second homes drive prices through the roof, these market-shaking forces seem to have played out and we now have what we'll call the "new normal." The 2007 summer season looks like a duplicate of 2006, with higher inventories of homes and greater competition among homeowners, steady demand, modest increase in prices, and a few uncomfortable vacancies for some homeowners.
So what is this new world? And, how do homeowners maximize their enjoyment and investment in second homes?
But first, a look back at 2006 versus 2005 and a look ahead to 2007, as seen through the lens of the data that we collect at WeNeedaVacation.com, the largest website for advertising Cape and Island vacation rental homes. A year ago, homeowners increased their weekly prices for the upcoming 2006 summer season by 2.3% over 2005 prices. This year, prices for summer 2007 are up 2.7% for a sample of 1,315 homes that have advertised with us since the summer of 2005. Our homeowners are showing a similar confidence in 2007, showing a steadiness that marks this new normal environment. Increased competition has pressured prices; they have risen only 16% since 2003.
Homeowners set prices against a backdrop of another dynamic that has settled in over recent years: they set an initial price in the fall or winter and then react as the season plays out. They have the ability to set a price for every week of the year on WeNeedaVacation.com, and the vacationers can search for availability for any week at or below a certain price. For example, one can ask for homes for the third week of July under $1800. This past June through August, 300 homeowners dropped their prices an average of $112 to woo last minute vacationers. With a median weekly price of $1,800, $112 is a substantial percentage drop. In June thru August 2005, 363 homeowners dropped prices the exact same $112: the new normal!
Vacationers, armed in the new millennium for the first time with websites that publish weekly prices, have also adapted to this new Internet age. Spooked by 9/11 and Iraq and economic struggles, vacationers delayed making summer plans in 2002 and 2003. They learned that they could still find available homes due to a burgeoning inventory of second homes for rent and thanks to published calendars on the Internet. The new "learned behavior" has lead to remarkable patterns: in looking for July and August vacations, 10% start their quest in the prior year; one third look in January through March, another third look in April through June, and a whopping 18% wait until July 1 to start looking! That is, nearly one-fifth of vacationers plan their summer vacations within a month of going. In fact, this past summer, 19% of all the interest in August came in July alone.
So the good news for homeowners is that there is still hope for filling empty weeks after July 1, but they will have to slash prices. We advise homeowners to list their homes year-round due to the year-round interest, or if not, for at least six months to accommodate this very attenuated vacation planning behavior of the new, Internet-savvy vacationer!
Interest so far in 2006 for summer 2007 is exactly the same as it was a year ago January to January. Supply and demand are in balance price-wise, with 6% of homes priced under $1000 a week; 36% are $1000-$1999; 32% are $2000-$2999; and 26% are over $3000.
So, if prices and vacationer interest suggest a very similar year in 2007 to 2006, how can homeowners avoid price-cutting and even unbooked weeks?
Find a suitable marketing vehicle. Select a website that is prominent in the search engines or that you hear others have used successfully. Put yourself in the shoes of the vacationer and Google "(your town or city) vacation rentals." See which sites come up first for your area. Even if you decide to go with a rental agency or property management company, you may still want to do some advertising independently of them.
Price your home competitively. But be realistic in setting your rates. Find comparables in your area in terms of size and amenities and then try to price your home at or slightly below the others. Proximity to water is usually top priority for vacationers, so homes within a half mile of the beach generally rent more easily than those farther away. Size is important; a four-plus bedroom home can sometimes fetch twice as much as a smaller home, particularly when an extended family or two families are splitting the cost.
Distinguish your home from the others. Many vacationers are coming from a distance and will be renting a home based on what they see on their computer screen. You will want to portray your home in its best light; at the same time, be accurate and forthright. You want your tenants to walk into your home and say, "Wow! This is even nicer than I thought it would be!"
(This article also appears in the March, 2007 issue of CapeBusiness magazine.)
For underlying data, see a companion press release "2006 in the mirror, 2007 in the looking glass"