Effects of recession still batter coastal developments
July 16, 2011 at 2:16 a.m.
Updated July 17, 2011 at 2:17 a.m.
PORT O'CONNOR - From the custom coastal home's third-story deck, Tony Prokop, a home builder, enjoyed sweeping views of Port O'Connor, two busy bays and the luxury amenities below.
Not even the swimming pool, volleyball court and multimillion-dollar private canals at Caracol, a high-end waterfront development, could undo the most disheartening visual: more than 70 vacant lots.
In many ways, the Crossroads warded off the worst effects of the recession. In the luxury vacation and second-home markets, however, the region's coast proved it lacks full immunity.
A lag in consumer confidence, a plunge in discretionary spending and tighter restrictions in second-home mortgage lending all play key roles in lackluster growth here.
The market, among a handful of newer waterfront developments between Port O'Connor and Seadrift, remains saturated with empty lots. Of 1,116 lots within five such developments, 1,088 - or 97 percent - have yet to be built upon.
Despite the doom and gloom, many real estate experts say it's only a matter of time before lot buyers build homes. After all, the Texas economy seems strong, investment portfolios have rebounded and such signs spur confidence.
Prokop, owner of Victoria's Prokop Custom Homes, offered this day a tour of Caracol. Of the 74-lot development's two houses, he built both and is working on another.
"It does seem like business is picking up compared to the Great Recession we just went through," said Prokop, who leaned against the kitchen countertop and in front of the translucent-green, subway-tiled backsplash. "My phone's been ringing more in the last three months than it has in the last three years."
Ground broke on many of these newer waterfront developments just before the economy crashed in 2008. Before the recession, Calhoun County teemed with newfound potential and the promise of a massive tax base injection.
But when the economy tanked, so, too, did consumer confidence and the urge to buy luxury items such as vacation homes.
"Recessions always affect luxury spending, and this recession was the worst one we have had in a while," said Ray Perryman, a Texas economist. "Second homes and retirement homes were particularly hard hit."
Studies of upscale developments nationwide showed a halt in activity in 2008, according to the Mortgage Bankers Association. Americans in their 50s, whose retirement plans suffered greatly, were hit hardest. This demographic represents likely buyers of homes in Caracol and other such developments.
Adding to the slow growth, banks have yet to ease mortgage lending restrictions, especially on mortgages for second homes. Banks declined 35 percent of mortgage loan applications in Texas last year, according to an analysis by the Wall Street Journal. Most buyers of Calhoun County's waterfront property hail from Texas, namely Houston.
"Until financing for secondary homes frees up, I think it's going to continue to be slow growth," Jerry Daum, the Calhoun County chief appraiser, said.
While these factors help to explain why only three homes stand in the 74-lot Caracol development, another reason looms: competition.
Developers, real estate agents and brokers agree the Texas coast exploded with waterfront development at about the same time.
Homes are spread thin among the five developments, which only highlights the excess of vacant lots in each.
"We were taken aback by how much was put on the market at once, and not just in Port O'Connor," said Lauren Brindley, who markets Caracol. "It's all along the coast - from Port O'Connor and Seadrift to Galveston."
Last week, affluent fishermen from all over the country descended upon Port O'Connor for Poco Bueno, the annual invitational fishing tournament. Caracol played home to a pre-party.
Brindley, Prokop and others hope such exposure will spark in visitors the confidence and interest in Caracol that existed before the recession.
"One thing to keep in mind is that recessions normally interrupt economic behavior, but don't fundamentally alter long-term trends," said Perryman, the economist. "Assuming the underlying economics of these projects were good, they will likely be successful in the next few years."