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Second Home Buyers Account for 40% of 2005 Resales
Vacation and investment homes accounted for a full 40% of the homes that were resold last year, with sales of both setting records, according to a report released by the National Association of Realtors® (NAR) on April 5.
Based on the results of two surveys, 27.7% of existing homes sold in 2005 were purchased as investments, according to the Realtors®. Sales to investors rose 15.7% to a record 2.32 million.
Another 12.2% of the homes resold last year were bought as vacation properties. Those sales rose 16.9% to a record 1.02 million.
While baby boomers, now at the peak of their careers, are the force driving the second home market, and historically low interest rates have helped provide them with the wherewithal to buy more housing, NAR Chief Economist David Lereah noted that there are significant differences in what makes investment and vacation home buyers tick.
“Vacation home buyers are making lifestyle choices and purchasing primarily for their own enjoyment,” Lereah said. “Investment home buyers are seeking rental income and portfolio diversification, although vacation home buyers also mentioned diversification.”
Asked for the reason they bought their second home, 41% of vacation home buyers said to use it for vacations, 31% to use it as a family retreat and 28% to diversify their investments. Among investment buyers, 55% cited rental income as their primary purpose in making the transaction and 35% said they wanted to diversify their investments.
The median price of a vacation home last year was $204,100, up 7.4% from the previous year, compared to $183,500 for the typical investment property, 24.0% more expensive than in 2004.
Typical vacation home buyers in 2005 were 52 years old, earned $82,800 and purchased a property that was a median of 197 miles from their primary residence. Forty-seven percent of vacation homes were less than 100 miles away and 43% were at a distance of 500 miles or more.
Investment buyers had a median age of 49, an income of $81,400 and bought homes that were a median of 15 miles from their primary residence.
More than three-fourths of vacation home buyers said they had no interest in renting their property, and 21% intended to make it their primary residence once they retire, compared with only 2% of investment buyers. Fourteen percent of investment buyers and 6% of vacation home buyers reported purchasing a property that their children could occupy while in school.
Purchasers of second homes valued their proximity to:
- An ocean, river or lake, 40%
- Family members, 34%
- Preferred recreational activities, 27%
- Their primary residence, 27%
- Mountains, 26%
- A preferred vacation area, 24%
- A job or school, 17%
Activities of interest to vacation home buyers included:
- Beach, lake or water sports, 37%
- Golf, 29%
- Theme parks, 18%
- Winter recreation, 16%
- Hunting or fishing, 12%
- Boating, 9%
- To a lesser extent, gambling, biking, hiking or horseback riding, and tennis
Regionally, the Midwest accounted for 33% of vacation home sales, followed by the South, 30%; the West, 20%; and the Northeast, 17%.
The South led investment buying with a 38% share, followed by the Midwest and West, each with 24%; and the Northeast, 15%.
One-third of vacation home buyers and 36% of investment buyers said that it was very likely that they would purchase another home, in addition to the properties they already own, within the next two years.
Lereah predicted that vacation home sales would remain strong for the foreseeable future, but he said that sales to investors were likely to decline this year in response to rising mortgage interest rates.
“There are fewer incentives to speculate in the market with price appreciation cooling in much of the country,” he added, “and more oversight is being encouraged in the mortgage market. It’s hard to say how much speculation there may be in housing, but it’s probably a single-digit percentage of total home sales.”
The Realtors® are working on a more extensive survey profiling second home owners that is expected to be released late this spring.
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