Ocean City, once a determinedly middle-class holiday retreat, is morphing into a resort where townhouses cost $2.8 million, condos rise in value $100,000 between reservation and settlement and homes are selling for $1 million on a densely packed tract of land next to the town's sewage treatment plant.
While the booming real estate market is showing signs of cooling elsewhere in Maryland and across the nation, sales of housing on the Maryland shore remain white-hot, fueled by relatively low interest rates and investment-seeking baby boomers grown skittish of stocks.
Broker Rick Meehan said he and his partner, Katy Durham, had sold four $1 million properties by last month - two single-family homes, one townhouse and a condo. In any of the recent past years, he might have sold one. Also, $1 million properties have been listed in Ocean City for only about three or four years, he noted.
At recent count, his agency had five properties listed at $1 million, he said.
A snapshot of Ocean City listings one day this month showed 580 townhouses and condos for sale in Ocean City, 25 of which listed at $1 million or above. The most expensive was a three-bedroom, three-bath unit on the ocean for $1.825 million. Built in 2001, it had an original purchase price of $649,000, Meehan said.
Nearby, West Ocean City had 20 condos and townhouses and another 60 single-family homes listed. Eight of the single-family homes were listed at over $1 million, he said.
"It's a great market," said Meehan, a Realtor with Coldwell Banker in Ocean City. "Our office sales have gone up 30 percent each of the last three years."
Bill Cook has watched the growth firsthand and still views it a bargain, compared with the rest of the country.
Cook, 48, is swapping his two condos on the boardwalk at 9th Street for two new ones on the bay.
"I've learned that it's better to vacation on the ocean and live on the bay," said Cook, a food exporter who works from his seaside living room when he isn't traveling. "There's a lot more activity on the bayside with boating and wildlife. You can people-watch all day; I like to see some birds. It's just preference. For me, it's an investment. I think there's great opportunity on the bay."
He bought one of his oceanfront units in July 2001 for $619,000 and liked it so much that he bought one next door the following month. He has since sold one of them and has the other on the market.
The first one recently sold for $825,000, and the other was just appraised for $990,000, he said. They rent for $4,000 a month during prime season.
'Ready to catch fire'
"I saw them building this," said Cook, who travels internationally. "Seeing what I'd seen, I knew this town was about ready to catch fire."
Jesse C. Houston, Ocean City's director of planning, said his department has been swamped with all the construction going on.
Although the number of units isn't increasing drastically, the valuation of the buildings is rising significantly, he said. And the permits and review process for those new, more complicated buildings takes more time, he said.
Houston finds it interesting that more people are buying high-end units and not renting them out.
"I'll go out on the beach in the summer on a weekend and look back at the buildings, and half the units will have their hurricane shutters closed up and aren't occupied," he said. "If there were more people in town, we'd do more tourism-related business. On the other hand, if there were more people in town, the negative aspects of more people being in town would be more visible."
One of Ocean City's greatest challenges is that new condo development is replacing established businesses, including restaurants, Houston said. There have been six to 10 examples in the past couple years, prompting the town to devise incentives to keep the businesses operating, he said.
"Restaurant owners are closing and developing their properties in condos, because there's so much value there," he said. "It's great for the individual, but from the standpoint of broader Ocean City, it may not be so great. People need a place to eat and shop. We don't want to become just residential. You want to be a complete community with all the amenities."
Meehan remembers when the first Ocean City waterfront condos went on the market for $400,000.
"Everyone laughed," he said. "Now they're selling for $1 million to $1.5 million."
Despite the shortage of available land in Ocean City, there is abundant new construction as older units are torn down and replaced by new ones with large bedrooms, high ceilings and other modern amenities that people seek, whether they rent or buy, Meehan said.
"The purchase price of all our property in Ocean City has doubled or tripled in the past four years," he said. "Our average inventory has decreased because of the rapid sales. If there's a nice piece of property, if you don't move quickly, you're not going to get it."
Sunset Island, a community that will feature more than 500 units in a Main Street-style development near what Meehan likes to call "the city yard," is in the heart of Ocean City on the bay and across from the ocean. Despite its location next to the town sewage treatment plant, sales have been brisk.
"The bottom line is, people want to be in Ocean City," he said. "It's clean and safe. It has a lot of activities for everyone."
More and more, the customers are couples in their 30s and 40s, with two incomes and children, who are looking for an investment in the form of a vacation home, Meehan said.
The least expensive property available these days is an efficiency of less than 500 square feet, selling for $105,000 and two blocks from the beach, Meehan said. A three-bedroom oceanfront condo sells for $1.8 million, he said.
For those selling real estate, evidence of Ocean City's evolution into a resort for all seasons is clear.
"It used to be that spring and fall were our busiest times," Meehan said. "Now we're busy all year round, just like the town."
Jay Phillips, a Realtor with Holiday Real Estate Inc., recently bought a quarter-acre lot in Glen Riddle - a planned golf community a few miles outside Ocean City - as an investment for $150,000. He expects to build a house on it and sell it for close to $600,000.
"The reason I bought in there is that land is scarce now," he said. "I expect the lot value in two years to be $225,000, if I just sold it."
Prices double, triple
About 60 lots were available in that development, and they sold in one day, mostly to local residents, he said. Phillips, who works more than 80 hours a week, referred seven buyers in a single week to an associate who was selling them in Glen Riddle.
"I've seen lot prices double and triple in a year's time because builders are hungry," he said. "When the big boys rolled into town, a lot of our local builders scrambled for inventory, helping push up prices. If I had the inventory of new construction, I probably could sell 60 houses a year myself."
Typically, a Realtor sells eight to 10 a year, he said.
"It's phenomenal," he said.
The market for condos has changed drastically in the past 25 years, he said.
"In the '80s, there was a lot of supply, and you couldn't give away a condo in Ocean City," he said.
For the next decade, sales were flat. Then, by 2000, people were renting more condos. As prices rose in 2001 and 2002, people reverted to staying in hotels.
"For the past two years, people are buying these units and not renting them out," he said.
A year ago, a property would not last on the market 30 days without multiple offers and getting more than the asking price, he said.
"It has tapered a little," said Phillips, whose territory is West Ocean City. "We've torn down some of the old units, and there's more inventory."
The juxtaposition of neighborhoods is sometimes stark. One of the most upscale communities, Marsh Harbor, has multimillion-dollar homes within 250 yards of a mobile home community where one home recently was selling for $49,000.
As long as interest rates remain low, Phillips predicted, the greater Ocean City market will continue to grow.
"We're nearly out of raw land," he said. "So that 15-mile circle around Ocean City is the hot zone."