Wrap Up of First Half of 2005

Wellesley, July 13, 2005--The first half of 2005 ends with both concerns and optimism for the Cape & Islands rental market: Cape Cod, Nantucket and Martha’s Vineyard. Vacationer demand remains strong, but bookings are occurring later in the year than usual. The inventory of available homes has outstripped demand as baby boomers continue to flow into this potentially lucrative market, thus occupancy rates are lower than in past years. Home rental prices had held into June, but are starting to drop considerably as the homeowners worry over occupancy and procrastinating vacationers seek bargains.

This report contains four sections:

Vacationer demand

Vacationer trends – what do they want, when do they want it?

Vacation rental home supply and occupancy

Homeowner pricing

The information in this report derives from activity between January 1, 2005 and June 30, 2005 on WeNeedaVacation.com. WeNeedaVacation.com has more active vacation rental listings on the Cape & Islands than any other website. Our state-of-the-art relational database records every search done by vacationers, and every change made by homeowners. For other press releases, please see our press area. For more information, please call Jeff Talmadge at 888-281-8660.

1. Vacationer Demand

Summary: As measured by views of our property listings, demand is up in 2005. In the past, we’ve attributed similar growth to our increased visibility, but believe that the 2005 growth signifies other, more important factors. We have been very visible per search engines and links for several years, so we can’t improve on that given stable marketing approaches. We have done nothing new for 2005. We’ve seen a 49% increase in traffic to our Cape Cod homes since 2004 and a 25% increase in our Island homes, as measured by views of our listings. Much of this we attribute to increased use of the Internet to find vacation rentals. We also believe that vacationers have fewer worries about the economy, jobs, international strife than a year ago, and therefore are more active.

Methodology: Vacationer activity can be tracked in two ways. First, during this report period, 480,000 searches were done for Cape & Island homes. Each one may search for size, price, amenities, location and availability. Thus, the results draw from this search data. Secondly, we record every “property view” or time that an individual vacation rental listing is viewed by a vacationer. There were 4,161,000 such property views. These views come from two sources: (1) a search produces a list of suitable listings, and (2) pages on the site list all homes in each town.

2. Vacationer Preferences

Where are they looking? In the past few years, we have seen a slight shift in demand from the Islands to the Cape. Higher prices on the Islands and ferry problems may contribute to this shift. But, as we already observed, interest overall remains strong, with a 49% increase in traffic to our Cape Cod homes since last year and a 25% increase in our Island homes, as measured by views of our listings.

Drilling down further, the interest is growing in the Outer Cape1 most particularly.

Table 2. Where they look, in more detail.

The most popular towns in order are: Chatham, Orleans, Eastham, Brewster, Dennis and Wellfleet.

How much are they willing to spend?

Vacationers may state the maximum price that they are willing to pay for a weekly vacation; note that this section addresses only weekly rentals for the summer of 2005. For a full analysis of prior years and homeowner pricing this year, see our February press release. The table below shows the price bands this year’s vacationers are willing to pay compared with the past 3 years. There’s an ever so slight shift upwards on Cape Cod from 2004 to this year below $3,000; this means that 2% more are willing to pay over $2,000 (29% vs. 27%) than last year. The high end is unchanged. On the Islands, this same shift is more pronounced, which bodes well in general: the 0-1,999 range dropped 5%, which was spread among more expensive homes. This shift started last year when demand for more expensive homes grew considerably. This tells us that fears of booming prices on the Islands are not as daunting as some report, but that there just are not enough people willing to spend generally higher prices than Cape Cod to keep the overall Island demand as strong as it was three years ago.

Table 3, Price preferences by year.

In 2005, as in most years, interest flows from the most expensive homes to the less expensive ones as the year unfolds. The more expensive ones, besides often being the most desirable, nearest beaches, etc. are also the largest, and larger homes book early. Large parties have more individual’s vacations to coordinate, and they start early – right after the December holidays, in fact. For example, searches for Cape Cod for $3,000 or more constituted 30% of January’s interest, but in June, this number had dropped to 16%. Given that January and June were essentially equally busy months on our site, this represents a very real drop in demand. Owners of more expensive homes are wise to list during December to take advantage of the post-holiday rush; conversely, they are gambling if they wait until spring when demand drops off. The flip side is that smaller homes’ demand peaks closest to the actual summer season.

How large are the homes they want?

As we saw in the prior section, demand for larger homes is greatest in the beginning of the rental season or right after the Christmas holidays. But before elaborating, let’s look at the year to year trends. Surprisingly, popularity of larger homes has waned a bit since 2002, as seen in Table 4. We saw a surge in interest in large homes in 2002 due to September 11th as families sought the comfort of each other, and the large family vacation boomed. Since then we are returning to a more normal demand.

Table 4. House size trends, yearly.

In 2005, as in years past, the large homes are popular early, as shown in Table 5.

Table 5. House size trends, monthly 2005.

How long do they want to stay?

Gone are the days of the family spending the summer on Cape Cod, at least in rental homes. Even the 2, 3 and 4 week vacation are a vanishing breed. As people’s lives get busier and choices for destinations grow in an ever-shrinking world, the one week stay is now the staple of the Cape & Island vacation. Also, the demand for vacations of less than one week are growing somewhat. Could people be eschewing the weekly vacation for less time? For the sake of the homeowners’ sanity, let’s hope not. Table 6 tells the full story. It shows one decimal point because the less than 1 week and 3 or 4 week columns’ shifts are subtle. There is no appreciable difference between Cape Cod and the Islands, so they are not broken out.

Table 6. Length sought.

Those that do seek the longer vacations do so early in the rental season. 11% of January searches were for 2 or more weeks, vs. only 4% of June’s.

When do they want to vacation?

The Cape & Islands are one of the world’s great summer vacation spots, but they are open for business year-round. How much demand is there for varying parts of the year? Many of our homes are available for rent any time of year. All new construction would be for year-round homes. Many owners use the summer income to pay the bills and off-season for profit. As the inventory of homes grows, demand for off-season remains stable. Table 7 shows the big picture for demands for times of the year.

Table 7. Demand for times of year.

When do they conduct their search for their vacation rental?

When are vacationers looking? When we began WeNeedaVacation.com in 1998, the pattern was that January through March were the busiest months for vacationer traffic. This was true until the past few years.

Table 8 shows when vacationers have been seeking July and August vacations over the past 3 years. The first column is the time of the actual vacation. The “Previous Yr.” means searches for the following summer in the prior year. The other columns are when vacationers actually were looking.

Table 8. When are vacationers looking?

The main illustration is that vacationers are deferring their decisions later into the season to look for vacations. This is due to several important factors. 2003 & 2004 were marked with a very uncertain spring internationally, not the least event of which was the Iraq war. The economy has been recovering, but the middle class has been squeezed by continued loss of employment to overseas alternatives.

Interestingly, the season is not only showing signs of procrastination, but also of attenuation. Note the growth of demand in previous years. The Cape & Islands have become a year-round destination with year-round interest!

We expect the demand for July through the end of the year to be strong, so those percentages for 2005 should grow as the year progresses. Last year, July was extremely busy with last-minute planners for July and August. 6% of overall demand for July 2004 came in July 04. An amazing 24% of demand for August 2004 came in either July or August 2004. This same pattern is holding for 2005, which is very good news for homeowners with open availability.

As to demand for September, last year almost half of the demand for September (49%) came in July, August and even September itself. A full 64% of demand for October was in July or beyond, so the fall off-season months are just starting to heat up in July. 2005 shows every sign of repeating 2004’s last-minute behavior.

3. Vacation rental home supply and occupancy

The number of active listings on our website has grown dramatically every year. Table 9 shows this growth using end of June numbers for the Cape & Islands. This growth comes for many reasons (growth of popularity of using the Internet to find vacation rentals, increase in inventory of homes available for rent, our increased visibility and marketing), but most notable is that this growth has outstripped demand for vacation rentals. We have no hard evidence, but anecdotally, we observe that many of our new clients have purchased homes recently. The boom in Cape & Island real estate prices, aging baby-boomers, and the ease with which the Internet has enabled home buyers to rent their homes and save on commissions have all lead to a rush into the market. Every new homeowner is one more home on the market and one less vacationer to fill other homes!

Table 9. WeNeedaVacation.com active listings

Looking at availability, Cape & Island bookings are up 27% over last year at the same time, but the inventory of available weeks has grown 46%. This leads to an excess of availability at this time of year. Table 10 breaks this down geographically. Each number is the comparison with where we were at the end of June 2004. We are looking at the full nine weeks of the summer. June bookings were as strong as any prior month. July has started with strong bookings, supporting the notion that procrastinators are actively out there. “Total weeks” is the number of total weeks, booked or available, at the start of the 2005 season.

Table 10. Bookings versus 2004

4. Homeowner Rental Pricing

In any market where supply exceeds demand, prices tend to fall. For a look at the pricing at the beginning of the 2005 season versus prior years, please see our February press release, “2005 Pricing shows homeowner caution.”

In 2005, rental prices held steady, dropping only 1% through May, or $21 from an average of $2,258. In June, the average dropped another $16. But digging deeper, we see that 176 owners dropped prices in June. Table 11 shows the detail.

Table 11. June price changes.

More price cutting is expected in July, and in fact, is happening.