NAR’s annual Investment and Vacation Home Buyers Survey shows vacation-home sales rose 4.7 percent to a record 1.07 million in 2006 from 1.02 million in 2005, while investment-home sales fell sharply, down 28.9 percent to 1.65 million in 2006 from a record 2.32 million in 2005. By contrast, primary residence sales fell 4.1 percent to 4.82 million in 2006 from 5.02 million in 2005.
Twenty-two percent of all homes purchased last year were for investment, down from a 28 percent market share in 2005, while another 14 percent were vacation homes, up from a 12 percent share in 2005.
David Lereah, NAR’s chief economist, noted the drop in investment homes was much greater than the decline in primary residence sales. “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, but the rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others,” Lereah said.
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; 42 percent of vacation homes were closer than 100 miles and 32 percent were 500 miles or further.
“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 said.
Last year, in the 2005 second home buyer survey, NAR noted that there were 36.0 million people aged 50 to 59 in the United States, and the median age of vacation-home buyer was 52. However, Lereah said a larger group of people aged 40 to 49 in 2005 would be driving 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.”
In listing the reasons for purchasing a vacation home, 79 percent of buyers wanted to use the home 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.
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.
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 said to provide 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.
Thirty-seven percent of investment homes are in a suburb, 22 percent 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.
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.
Twenty-five percent of vacation-home buyers paid cash for their property, as did 32 percent of investment buyers. An unusually high number of respondents in this survey report purchasing new homes: 44 percent of vacation-home buyers and 36 percent of investment-home buyers.
The median price of a vacation home in 2006 was $200,000, down 2.0 percent from $204,100 in 2005. The typical investment property cost $150,000 last year, down 18.3 percent from $183,500 in 2005.
“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 said. “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. This underscores that housing should always be viewed as a long-term investment, providing solid returns over time.
“Anecdotally, 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 said.
Vacation-home buyers plan to keep their property for a median of 10 years; 38 percent, the largest share of respondents, plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of five years, with 33 percent planning to keep 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.
Most 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.
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.
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.
Eight in 10 second home buyers considered it a good time to invest in real estate, compared with 57 percent of primary residence buyers. A surprising 55 percent of vacation-home buyers and 66 percent of investment buyers said they were likely to purchase another property within two years.
“Second homes are really something of a misnomer because a fair number of respondents buy multiple properties,” Lereah said. 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.
An earlier survey, The 2006 National Association of Realtors® Profile of Second-Home Owners, described what current owners most desired in a vacation home. Two-thirds want to be close to an ocean, river or lake; 39 percent close to recreational or sporting activities; 38 percent close to vacation or resort areas; and 31 percent close to mountains or other natural attractions.
Leisure activities of interest to vacation-home owners included beach, lake or water sports, 57 percent; boating, 38 percent; hunting or fishing, 32 percent; golf, 21 percent; biking, hiking or horseback riding, 20 percent; ski or winter recreation, 17 percent; and tennis, 9 percent.
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. The survey controlled for age and income, based on information from the larger 2006 National Association of Realtors® Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
This news release is the full write-up of the survey; there is no additional text. Data tables are available on request.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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