Thu, 06 Apr 06
Holiday and investment home sales in the US both broke records in 2005, with combined total second home sales jumping to 40% of the entire residential property market, according to the National Association of Realtors® (NAR).
According to NAR's annual report, holiday home sales increased 16.9 percent last year to a record 1.02 million from a downwardly revised 872,000 in 2004, while investment home sales rose 15.7 percent to a record 2.32 million in 2005 from an upwardly revised 2.00 million in 2004.
27.7 percent of all homes purchased in 2005 were for investment and another 12.2 percent were holiday homes. All together, there were 3.34 million second-home sales in 2005, up 16.0 percent from an upwardly revised total of 2.88 million in 2004. The market share of second homes rose from 36.0 percent of transactions in 2004 to 39.9 percent in 2005.
The median price of a vacation home in 2005 was $204,100, up 7.4 percent from $190,000 in 2004. The typical investment property cost $183,500 last year, up 24.0 percent from $148,000 in 2004.
David Lereah, NAR’s chief economist, said all the factors at play in the second home market were favorable in 2005. “To begin with, the baby boom generation is driving second home sales – they’re at the optimum point in life when people become interested in second homes, they’re at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments,” Lereah said.
What's more, as NAR President Thomas M. Stevens points out, not all "second" homes sales are necessarily the second home of the purchaser, particularly for investment buyers. “Some of these purchases may be a third, fourth or fifth investment property, showing that housing is a good investment,” said Stevens. “The lion’s share of investment homes is actually the primary residence of a renter.” According to NAR figures, 11 percent of all US homeowners hold two properties, whilst 4 percent hold three or more properties.
One-third of holiday home buyers and 36 percent of investment home buyers said it was very likely that they would purchase another home, in addition to properties currently owned, within the next two years.
A wide range of motivations
Lereah pointed out the significant differences in motivation between holiday home buyers and investment buyers. “Vacation-home buyers are making lifestyle choices and purchasing primarily for their own enjoyment,” he said. “Investment-home buyers are seeking rental income and portfolio diversification, although vacation-home buyers also mentioned diversification.”
In listing the reasons for purchase, 41 percent of holiday home buyers said to use for vacations, 31 percent to use as a family retreat and 28 percent to diversify investments. For investment-home buyers, 55 percent said rental income was the primary factor for buying, and 35 percent wanted to diversify investments.
The average holiday home buyer in 2005 was 52 years old, earned $82,800, and purchased a property that was a median of 197 miles from their primary residence. Although with a median age of 49 and an income of $81,400, the profile of investment home buyers last year was fairly similar, this group tended to purchase property much closer to home – a median of 15 miles from their primary residence.
More than three quarters of holiday home buyers have no interest in renting their property, and 21 percent said it would become a primary residence on retirement compared with only 2 percent of investment buyers. Fourteen percent of investment buyers and 6 percent of holiday home buyers purchased a property that their son or daughter can occupy while in school.
In describing what factors they look for in terms of the location of their property, holiday home buyers said they looked for property that was close to the following:
- An ocean, river or lake (40 percent)
- Family members (34 percent)
- Preferred recreational activities (27 percent)
- Their primary residence (27 percent)
- Mountains (26 percent)
- A preferred vacation area (24 percent)
- A job or school (17 percent)
Leisure activities that affected the decision to buy a particular holiday home included:
- Beach, lake or water sports (37 percent)
- Golf (29 percent)
- Theme parks (18 percent)
- Winter recreation (16 percent)
- Hunting or fishing (12 percent)
- Boating (9 percent)
- Smaller categories included gambling; biking, hiking or horseback riding; and tennis.
Southerners invest, unlike those in the midwest...
The largest concentration of holiday home buyers are in the Midwest, accounting for 33 percent of holiday home sales, although the property may be located in another region. Buyers in the South accounted for 30 percent of holiday home transactions, the West, 20 percent, and the Northeast, 17 percent.
Most investment home buyers are in the South – 38 percent of the total. Buyers in the Midwest and Western regions each purchased 24 percent of investment property, and the Northeast, 15 percent.
Mixed outlook for 2006
Lereah said it is difficult to project where the market will go in 2006. “Vacation-home sales will remain strong for the foreseeable future given the fact that baby boomers are favorably positioned in terms of affordability, as well as being at the stage in life when people are most interested in making that kind of a lifestyle purchase,” he said. “Discretionary purchases of that nature are more likely in a healthy economy, and that is looking positive as well.”
“On the other hand, investment home sales are likely to decline this year, in part because of higher interest rates,” Lereah said. “There are fewer incentives to speculate in the market with price appreciation cooling in much of the country, and more oversight is being encouraged in the mortgage market.”
Lereah expects a soft landing for the housing sector in 2006 with existing-home sales declining 5.7 percent to 6.67 million, the third highest on record.
But the future's bright...
However, Lereah predicts a rosy future for the second homes market in the US.
“Long term, the outlook for second homes is favorable because more people will be moving into the prime years for buying a second home,” he said.
Currently, there are 36.0 million people aged 50 to 59. However, there are 45.2 million people aged 40 to 49. “That younger segment will become a driving force in the second home market over the next decade,” he said.
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