Tide going out for Cape home sellers

YARMOUTH -- Michael and Barbara Zielinski moved here from Western Massachusetts in 1987 and, five years ago, bought a new retirement house. Just as they settled in, everything changed.

Two of their five children moved to Naples, Fla., for better jobs and cheaper housing. A third may follow. The couple, both 64, decided that they, too, would decamp to the Sunshine State.

Unfortunately, the Zielinskis' timing is terrible.

Sales of second homes in the United States rose at a torrid 17 percent pace in 2005, as relatively low interest rates and the sluggish stock market performance drove more people to put their money into real estate. But sales on Cape Cod fell nearly 10 percent last year, and that trend has only worsened this spring. A slowdown has cooled once-hot vacation markets such as Carmel, Calif., and Sarasota and Naples, Fla., although some spots -- such as Myrtle Beach in South Carolina -- are holding their own.

Sales of single-family homes on the Cape fell 19 percent between January and May, according to the Cape Cod & Islands Association of Realtors Inc. The median house price, which soared 70 percent between 2001 and 2005, stabilized at $399,000. The glut of homes for sale is threatening to drive prices down, and more sellers are reducing their asking prices, agents and housing specialists said.

Prospective buyers are dramatically slowing their purchases in reaction to rising mortgage interest rates and economic uncertainty, agents said. At the end of May, 4,517 single family homes were for sale on the Cape, up 54 percent in a year, the association said.

``I don't know that I'd be jumping into this market right now," said Barnstable County Register of Deeds John Meade. ``Who knows what it's going to do."

The Cape housing market -- about half investors and vacation-home owners and half year-round residents, according to agents -- softened earlier than the rest of Massachusetts. Prices for second homes tend to be more vulnerable to price drops than for those in metropolitan markets because more buyers are making discretionary purchases. When the stock market plunges or the value of their primary home value erodes, second-home buyers wait.

Investors who borrowed heavily to buy in a rising vacation market also are more likely to sell quickly when the market turns because they have little or no equity and no prospect of turning a profit. And those who bought vacation homes in the recent boom took on more debt than previous generations of buyers. According to the National Association of Realtors, two-thirds of second-home buyers between 2003 and 2005 used debt to buy vacation homes, up from one-third of buyers before 2003.

During the 1960s, 1970s, and early 1980s, the Cape was a retreat for a middle-class who could afford the modestly priced vacation homes being developed then. Now retired, those teachers, police officers, and plumbers are now ready -- by choice or forced by circumstance -- to cash in on nest eggs fattened by soaring prices.

Prices, still at or near record highs, are a powerful incentive to sell. Stewart Richards of Belmont and his sister might not be selling their late mother's house in Harwich, near Bucks Pond, if Richards had made it to the top of Stage Harbor marina's waiting list for a boat mooring, or if his sister weren't living in Seattle. But three properties, the house and two adjoining lots, are on the market for $379,000 -- six times what their parents paid 40 years ago.

``There is no debt at all. This is all gravy to us," said Richards, who said he already spent $4,000 of his inheritance on a used motorcycle. Richards, a management consultant, said he hopes to sell within the year but ``I don't feel the need to submit to pressure."

Eric Belsky, executive director of Harvard University's Joint Center for Housing Studies, who has researched second-home markets, said more investors and retirees are putting their Cape houses on the market in anticipation that prices will fall.

Cape prices ``will fall, but I don't think they'll likely fall dramatically," Belsky predicted. That's because second-home owners, like second-home buyers, also have more discretion about whether to wait for more favorable conditions. With the economy still strong, he said, demand for vacation rentals provides a cushion for Cape homeowners. ``Holding on to the house may make more sense," Belsky said.

But with so many houses for sale, there are deals.

The prospect of ``good values and a lot more options" spurred David Ritchie and Susan Walsh's search for a second home, along the Cape's elbow from Dennis to Eastham. Buying is not a stretch for Ritchie, Northeast marketing director for Omni Hotels, and Walsh, an insurance-company executive. Their primary home, on President's Hill in Quincy, has tripled in value since 1991.

The boom on Cape Cod was unforgiving to buyers, and Ritchie said they had given up on finding the perfect place in a quiet area, not too far from the water. ``You could see the prices skyrocketing, so we never really went forward," said Ritchie, 50, who vacationed in Harwich as a child. This summer, he said, ``I'm sure we can find something."

The dynamics of the Cape market create potential for standoffs with retirees who refuse to drop their price. Retirees ``want peak prices," said Harwich agent Richard Waystack. ``It's not there right now, [they can] wait until next year -- and that's what they're doing unless they have a high motivation to sell."

House-hunters are unlikely to get a bargain from Michael Zielinski, former owner of a Dodge dealership. He and his wife recently installed a new heating system, floors, deck, lawn, windows, and kitchen in their South Yarmouth home. ``I don't plan on dropping the price -- I've got a lot in here," he said. ``If it doesn't sell this year, we'll sell it next year."

Kimberly Blanton can be reached at blanton@globe.com.