2006 in the Mirror, 2007 in the Looking Glass

Wellesley, February 20, 2007--The Cape Cod & Island vacation rental season for summer 2007 is officially full steam ahead. In this report, we show that homeowners have raised their prices 2.7% over 2006 and vacationer demand mirrors 2006. From these trends, we cast our predictions for the upcoming summer season.

As reported in a companion press release, "The New Normal," the Cape & Island rental market has stablized after tumultuous post-9/11 years. But 2007 does show subtle trends: owners show average confidence in the season as evidenced by a 2.7% average increase in prices. Outer Cape owners showed the most enthusiam, whereas Martha's Vineyard owners were most cautious.

Vacationers launched the 2007 season right after Christmas and in general are behaving similarly to past years suggesting that 2007 might look a lot like 2006. Subtle early trends to watch are a preference for larger homes and for less expensive homes. These bear watching as the season unfolds.

Homeowner Pricing

Homeowner pricing is an indicator of confidence; specifically, how confident homeowners are about renting their homes for the full eleven weeks of the summer season (unofficially, June 23rd to August 31st). For the 2007 summer season, homeowners have raised their rental prices a modest 2.7%. Last year at this time, prices had increased 2.3% over 2005 rates, as stated in our 2006 report.

The following table looks at homeowner price increases for each of the six Cape and Islands locales.

Table 1: Homeowner Price Increases - by Locale - 2006 to 2007

*What towns make up the Cape locales?

Note: Data reflect the rates of 1,315 homeowners posting on WeNeedaVacation.com for at least three seasons (i.e., since summer 2005).

As Table 1 shows, homeowners on the Outer Cape are the most confident about their chances of renting for the entire season, raising prices a full 3.9%. On the other hand, homeowners on Martha's Vineyard are the least confident, raising prices only 1.4%. In both of these cases, homeowner confidence accurately reflects the rental activity from Summer 2006.

As the rental season unfolds, we will closely monitor pricing trends. We will be especially watchful for falling prices in individual locales, an indicator of low vacationer demand.

Whereas homeowner confidence is reflected in relative prices, vacationer demand is reflected in average prices. The following table shows average homeowner prices for the six locales, and compares them to the Cape Cod average.

Table 2: Homeowner Price Averages - by Locale - 2007

Note: Data reflect the rates of 2,402 homeowners posting on WeNeedaVacation.com.

Table 2 reveals the price diversity on Cape Cod, with a $459 difference between the average price on the Mid Cape and the Upper Cape. The average home on Nantucket is almost twice as expensive as on Cape Cod!

But how have prices evolved over the years? The following table reports on homes tracked since 2003 (again, grouped according to locale). The table shows 1) the rate at which homes have been added to WeNeedaVacation.com, and 2) the increases in homeowners' rental prices.

Table 3: Homeowner Price Increases - by Locale - 2003 to 2007

Note: Data reflect the rates of all homeowners posting on WeNeedaVacation.com over the past five seasons.

Table 3 reveals that, since 2003, homeowners across the Cape and Islands have steadily increased prices at rates of 15-17%, with three exceptions. Homeowners on the Upper Cape-emboldened by a surge of vacationer interest in their region-have increased prices by 22%, more than $450 per home. These gains were led by beachfront homeowners, who have increased prices a whopping 44%, more than $900 per home. On the other hand, vacationer interest in Martha's Vineyard and the Mid Cape has held steady, as reflected in the homeowners' modest increases of 11% and 12%, barely keeping up with inflation*.

*11.55% from 12/02 to 12/06 according to inflationdata.com.

Vacationer Demand - 2006 Summary & 2007 Forecast

We measure overall vacationer demand by tracking the number of times our property listings are viewed. In the 2006 calendar year, homes on Cape Cod, Martha's Vineyard and Nantucket received 6.6 million page views. Traffic to Cape Cod homes increased 9% over 2005, and traffic to Islands homes increased 13%. In our estimation, these increases are due in part to greater use of the Internet for planning vacations, and in part to fewer worries about the economy, jobs, and traveling.

Also in 2006, vacationers performed 700,000 searches for rental homes on the Cape and Islands. This section summarizes those vacationer searches, compares that activity to previous years, and looks ahead to summer 2007.

How can we cast predictions so early in the rental season? As stated in our introduction, the rental season usually begins in earnest on December 26th. In fact, vacationer interest spikes so strongly that January is our busiest month of the year, with an estimated 23% of vacationers making their plans before February 1st. So, six weeks into the rental season is a great time to look ahead.

What are the most popular destinations?

Before 2003, vacationer interest was steadily shifting from Martha's Vineyard and Nantucket to Cape Cod. Assumedly, vacationers were impeded by the Islands' higher prices during uncertain economic times. That trend stopped in 2005, and has held steady since; good news for Islands homeowners. The following table compares vacationer interest in the Cape and Islands from 2002 to 2006.

Table 4: Vacationer Searches - Cape & Islands - 2002 to 2006

Table 4 reveals that the Islands have lost almost half of their market share since 2002. The following table breaks down this data according to locale.

Table 5: Vacationer Searches - by Locale - 2002 to 2006

In 2006, the most popular vacation destinations were 1) Orleans, 2) Chatham, 3) Dennis, 4) Wellfleet, 5) Eastham, 6) Brewster, and 7) Harwich. Wellfleet jumped from sixth to fourth, reflecting the growing popularity of the Outer Cape. Nothing in the 2007 data suggests a change of preference in this regard.

How much do vacationers want to spend?

Vacationers may be tightening their belts in 2007 as subtle shifts in home size and cost show.

The following table shows how much vacationers have been willing to spend over the past four seasons, comparing Cape Cod to the Islands.

Table 6: Vacationer Price Preferences - Yearly - 2003 to 2006

Note: Data reflect how much vacationers are willing to pay over time.

As Table 6 shows, the amount that Cape Cod vacationers are willing to spend has remained unchanged since 2004. However, the data on the Islands reveals that vacationers are now willing to spend more than they were in 2003.

The following table summarizes the same type of data (how much vacationers are willing to spend) but only reports searches made in January. To make sense of our 2007 data, we have compared like periods of time.

Table 7: Vacationer Price Preferences - in January - 2005 to 2007

Note: Data reflect vacationer preferences each of last 3 Januarys.

Table 7 reveals a notable trend: vacationers who plan ahead (i.e., who look in January) are looking for larger, more expensive homes. Despite this, our 2007 data for Cape Cod does show a slight shift away from the most expensive homes. Similarly, the data for the Islands shows a slight shift to the least expensive homes, a trend that bears watching.

How large are the homes vacationers want?

In 2002, we saw a surge of interest in large homes, assumedly as a result of the events of September 11th, after which families sought the comfort of one another. Since then, however, popularity of large homes has waned. The following table looks at the size of houses (measured in number of bedrooms) sought since 2002.

Table 8: House Size Preferences - Yearly - 2002 to 2006

Note: Data reflect all vacationer searches since 2002.

Table 8 shows that 2002 and 2003 were the years of the large home. Since 2004, demand has returned to normal levels, and stayed constant. Early 2007 data suggests a decrease in interest in 1 bedroom homes and an increase in homes with 4 or more bedrooms. This bears watching.

It is also interesting to determine when vacationers look for large homes for the next summer season. The following chart tracks the size of houses (again, number of bedrooms) sought over the course of the 2006 rental season, which we set here as September to August.

Table 9: House Size Preferences for Summer 2006- Monthly

Note: Data reflect all vacationer searches for summer 2006.

Table 9 reveals that in 2006-as in previous seasons-interest in large homes begins immediately after the summer ends, reaches its height after the winter holidays, and declines as spring begins. This is a clear sign to owners of large homes: take advantage of the post-holidays rush and advertise early. If you wait until spring, you're gambling.

On the other end, the data show that demand for one- and two-bedroom homes steadily increases over the rental season, peaking in the mid- to late-summer. Apparently, couples and smaller families take advantage of their flexibility and delay making plans.

How long do they want to stay?

Gone are the days of families spending the summer on Cape Cod-at least for those renting. Even the two-, three- and four-week vacations are a dying breed. As our lives get busier and the number of travel destinations grows, the one-week stay is now the staple of the Cape and Islands vacation. The following table shows how long vacationers choose to spend on the Cape and Islands.

Table 10: Length of Stay - 2001 to 2006

Note: Data reflect all vacationer searches 2001 to 2006.

Table 10 reveals that the one-week stay is holding constant at 84% of the market share. Those who do seek longer vacations tend to make plans quite early, many booking in the fall. Our data show that 11% of January searches are for two or more weeks, compared with 6% of June searches.

When do they want to vacation?

Cape Cod, Martha's Vineyard and Nantucket are among the world's great summer vacation spots. However, many of our homes are available to rent throughout the year. Owners often use the summer rentals to pay the bills and the off-season rentals for profit. As the inventory of rental homes grows, vacationers are looking at increasingly attractive off-season deals.

The following table breaks down what months vacationers want to vacation.

Table 11: Vacationer Demand for Times of Year - 2003 to 2007

Note: Data reflects when vacationers seek to vacation, 2003 - 2006 and in January 2007.

Table 11 shows that-despite attractive off-season options-80% of vacationers still visit during the summer months of July & August.

Historically, August has been high season on the Cape and Islands, with July a close second. This season may mark the end of August's reign, however. Increasingly, students looking for an edge are getting a jump on academics and sports, even before the school year begins-causing families to vacation earlier in the summer.

When do vacationers make their plans?

In 1998, when we began WeNeedaVacation.com, the busiest months for vacationer traffic were January through March. This has held true, but in the past three years, vacationers are waiting slightly longer to make their plans.

The following table shows when vacationers plan their July vacations, from 2003 to 2006.

Table 12: When Vacationers Plan - July Vacations - 2003 to 2006

Note: Data reflects all searches for July.

Tables 12 reveals that vacationers are deferring their decisions until later in the season. Note that, last year, a full 22% of the interest in July vacations came just one month beforehand, up from 15% only four years ago. 2006 did not differ significantly from 2005.

We attribute this trend to a few political and economic factors. The springs of 2003 and 2004 were very uncertain, in part due to the Iraq war, and in part due to the unfavorable jobs outlook for the middle class. Also, our vacationers have learned that they can search easily for vacancies at the last minute and still find acceptable accommodations.

For more analysis, see a companion press release, "The New Normal".