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| Second-Home Market Shrinks Slightly in 2006 |
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(April 30, 2007) --
A steep drop in investment-home sales last year led to an overall decline in second-home transactions, despite a record-breaking year for vacation properties.
Second-home sales — including vacation and investment properties — accounted for 36 percent of all home transactions in 2006, down from 40 percent in 2005, according to the NATIONAL ASSOCIATION OF REALTORS® annual Investment and Vacation Home Buyers Survey.
Investment-home sales dropped a hefty 28.9 percent to 1.65 million, compared with 2.32 million in 2005, while vacation-home sales rose 4.7 percent to a record 1.07 million.
In terms of market share, 22 percent of all homes purchased last year were for investment, down from 28 percent in 2005. Another 14 percent were vacation homes, up from 12 percent in 2005.
“We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market,” says NAR Chief Economist David Lereah. “The rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others.”
Who Bought Vacation Homes
NAR's research shows the typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and purchased a property that was a median of 215 miles from their primary residence.
“The demographics favor vacation-home sales because large numbers of consumers are in the prime buying ages, and buyers want recreational property for personal use – investment is a secondary consideration,” Lereah says. Here are some more findings from the survey:
- Buyers get younger. In the 2005 survey, the median age of the vacation-home buyer was 52, eight years older than in 2006. Lereah expects that a larger group of people aged 40 to 49 would continue to drive the market in the coming decade. “We see this happening now with 44.7 million people in their 40s, and the median age of vacation buyers has dropped close to the historical average, which is about 47,” Lereah says.
- Family retreats. In listing the reasons for purchasing a vacation home, 79 percent of buyers said they wanted to use the property for vacation or as a family retreat; 34 percent to diversify investments; 28 percent to use as a primary residence in the future; 25 percent for the tax benefits; 22 percent for use by a family member, friend, or relative; 21 percent because they had extra money to spend; and 18 percent to rent to others.
- Rural areas most popular. In terms of location, 29 percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in a suburb, and 10 percent in an urban area or central city. Sixty-seven percent were detached single-family homes, 21 percent condos, 8 percent townhouses or rowhouses, and 4 percent other. One-quarter of vacation homes were purchased in the Northeast, 13 percent in the Midwest, 38 percent in the South, and 25 percent in the West.
- Seen as long-term investments. Vacation-home buyers plan to keep their property for a median of 10 years and 38 percent, the largest share of respondents, plan to keep their vacation home for 11 years or more.
A Look at Investment Home Buyers
Investment-home buyers last year were a median age of 39, earned an income of $90,250, and bought a home that was fairly close to their primary residence — a median of 22 miles.
When asked about the most important reasons for their purchase of an investment home, 46 percent were seeking rental income; 43 percent to diversify investments; 23 percent for tax benefits; 18 percent to use for vacations or as a family retreat; 15 percent because they had extra money to spend; 13 percent for use by a family member, friend, or relative; and 12 percent to use as a primary residence in the future.
Here are some more findings from the survey:
- Suburbs lead the pack. Thirty-seven percent of investment homes are in a suburb, 22 percent in a rural area, 18 percent urban or central city, and 7 percent in a resort area. Sixty-three percent are detached single-family homes, 26 percent condos, 6 percent townhouses or rowhouses, and 5 percent other.
- Most activity in the South. Twenty-four percent of investment properties were purchased in the Northeast, 17 percent in the Midwest, 39 percent in the South, and 20 percent in the West.
- Buyers paid cash. Thirty-two percent of investment buyers paid cash for their purchase, compared with 25 percent of vacation-home buyers.
- Plan to sell after 5 years. Investment buyers plan to hold their property for a median of five years, with 33 percent planning to keep it for six years or more. Even with the cautions on speculative investment, 12 percent of investment buyers plan to sell in one year or less, although some may be adding value by renovating.
Behind the Price Declines
The median price of a vacation home in 2006 was $200,000, down 2.0 percent from $204,100 in 2005.
Meanwhile, the typical investment property cost $150,000 last year, down 18.3 percent from $183,500 in 2005. Part of the drop in the median investment price results from investors shifting away from pricier markets like Florida, Nevada, and Arizona, and into affordable locations in New Mexico, Idaho, Utah, Georgia, Tennessee, and the Carolinas, Lereah says.
“The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling,” Lereah says. “It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts.”
He says the numbers show that housing should always be viewed as a long-term investment, providing solid returns over time.
More Facts & Figures About Second-Home Sales
- New homes make up a large share of the market. An unusually high number of respondents in this survey reported purchasing new homes: 44 percent of vacation-home buyers and 36 percent of investment-home buyers.
- Most buyers are married. The vast majority of second-home buyers are married couples, including 78 percent of vacation-home buyers and 68 percent of investment buyers. Single men purchased 11 percent of vacation homes and 17 percent of investment property; all other household categories are in the single digits.
- Racial breakdowns. Caucasians accounted for 78 percent of all second homes purchased in 2006, both for vacation homes and investment properties. African Americans purchased 8 percent of vacation-homes and 10 percent of investment properties; Asians accounted for 6 percent of vacation-home purchases and 7 percent of investment properties; and Hispanics bought 9 percent of vacation properties and 8 percent of investment homes.
- Most used real estate agent. Sixty percent of vacation-home buyers and 54 percent of investment buyers purchased through a real estate agent or broker, but 20 percent of vacation buyers and 17 percent of investment buyers purchased directly from an owner they knew. Those latter transactions may contribute to a somewhat lower median price because open-market transactions historically obtain higher prices than do closed sales.
- Buyers have a rosy market outlook. Eight in 10 second-home buyers considered it a good time to invest in real estate, compared with 57 percent of primary residence buyers. Surprisingly, 55 percent of vacation-home buyers and 66 percent of investment buyers said they were likely to purchase another property within two years.
- More than two homes. “Second homes are really something of a misnomer because a fair number of respondents buy multiple properties,” Lereah says. Eighty-six percent of vacation buyers purchased one vacation home, 12 percent purchased two homes, and 2 percent purchased three or more vacation properties. Sixty-three percent of investment buyers purchased one investment property, 23 percent bought two properties, 9 percent bought three investment homes, 2 percent purchased four properties, and 2 percent bought five or more investment homes.
NAR's 2006 Investment and Vacation Home Buyers Survey, conducted in April 2007, includes answers from 1,412 respondents, reflecting 1,729 homes purchased in 2006. Of these, 1,106 were primary residences and the remainder were vacation and investment purchases.
— REALTOR® Magazine Online |
| Reprinted from REALTOR® Magazine Online (http://www.realtor.org/realtormag) April 2007 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2007. All rights reserved. |
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