Second Homes Selling At An Astonishing Rate

Written by Posted On Tuesday, 01 March 2005 16:00

National Association of Realtors Chief Economist David Lereah has startling news -- almost a third of the current housing boom is second homes. Who are these second home buyers and what's driving them?

A new study, based on two surveys performed by the NAR, shows sales of second homes surged in 2004, and that investment property and vacation homes make up more than one third of residential transactions.

Twenty-three percent of all homes purchased in 2004 were for investment, while another 13 percent were vacation homes. In addition, there was a record of 2.82 million second home sales in 2004, up 16.3 percent from 2.42 million 2003. The investment-home component rose 14.4 percent to 1.80 million sales in 2004 from 1.57 million in 2003, while vacation-home sales rose 19.8 percent to 1.02 million in 2004 from 850,000 in 2003.

According to Lereah, earlier studies to learn how many homes were investment-vacation purchases were unsuccessful because second-home addresses were often returned.

"We found excellent results for studies looking at owner-occupied homes," explains Lereah, "but this is the first time anyone has come up with a methodology for capturing a representative market share for vacation- and investment-home owners. In fact, given the size of the market, we can assume that many individual owners have more than one investment property."

Previous studies had indicated the total stock of second homes purchased for investment or recreation was 6.6 million units, with more homes being purchased as vacation homes. But in 2003, the Census Bureau noted that there were 72.1 million owner-occupied homes, 37.2 million investment units and 6.6 million vacation homes.

But speculation fever has reversed that trend so that now, second home buyers are purchasing primarily for investment, which is also changing the notion or definition of second home properties.

"This led us to a new examination and understanding as to how much larger investment homes are, as a share of the overall housing market," said Lereah. "In examining Census data to determine the number of investment units, we see that second homes are a much larger share than the conventional mind-set of them being mostly vacation homes."

So who are these second-home buyers? In a nutshell, they are Baby Boomers. The typical vacation-home buyer is 55 years old and earned $71,000 in 2003, while investment-property buyers had a median age of 47 and earned $85,700.

In listing the reasons why they bought second homes, respondents said there were some differences depending on the type of home. Overall, 30 percent of buyers wanted to diversify investments, 28 percent sought rental income (37 percent investment vs. 7 percent vacation homes), 14 percent wanted a personal or family retreat (29 percent vacation vs. 8 percent investment), 6 percent planned to use for vacations (16 percent vacation vs. 2 percent investment), and 5 percent had extra money to spend.

For properties purchased between mid-2003 and mid-2004, these buyers paid a median price of $190,000 for vacation homes compared with $148,000 for investment homes. Nearly one out of five second homes will become primary residences after retirement -- 27 percent of vacation homes and 14 percent of investment property. In contrast with the last available full-year price data in 2001, says the NAR, vacation homes have appreciated 12.8 percent from $168,500, and investment homes have risen 25.4 percent from $118,000.

The good news for real estate agents is that Boomers still favor using them -- in searching for a second home, 83 percent of buyers used real estate agents. When asked where they first learned about the home purchased, 31 percent said a real estate agent; 24 percent a yard sign; 15 percent from a friend, neighbor or relative; 8 percent knew the seller; 7 percent from a builder; 6 percent on the Internet; and 2 percent from a newspaper or TV ad.

Typical buyers searched seven weeks to find their second home and looked at six properties. Eighty-three percent financed with a mortgage and made a median downpayment of 22 percent. Although 45 percent use savings for a downpayment, 29 percent used equity from a previous home.

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