Recently the National Association of Realtors reported that “Vacation-home sales recovered in 2009 while investment sales fell sharply.” Interesting. So what does it all mean?
Well, NAR’s 2010 Investment and Vacation Home Buyers Survey, covering existing and new home transactions in 2009, revealed that vacation-home sales rose 7.9 percent to 553,000 last year from 513,000 in 2008, while investment-home sales fell 15.9 percent to 940,000 in 2009 from 1.12 million in 2008. Primary residence sales rose 7.1 percent to 4.04 million in 2009 from 3.77 million in 2008.
What this in effect means is that the typical vacation home buyer is making more of a lifestyle choice than they are an investment purchase.
That’s not really big news to me. One of the first questions I’ve always asked the folks who call me or who turn up at my office is “Why are you thinking of buying?”. Time and time again I hear similar answers along the lines of “because we want somewhere to vacation or somewhere to retire and we figured that over time this would work out well for us.”
Just occasionally I hear from someone who is buying solely for investment reasons and when I do, I quickly inform them that there are better investments out there and that they would be better advised taking their hard earned and putting it somewhere where they can do better.
Make no mistake, even though this is a great time to buy, buying a vacation home is a LONG TERM hold if you want to see a return on your money. Gone are the days when you could flip a vacation home and make a quick ten grand or so.
The report goes on to say that nine out of 10 say they intend to use the property for vacations or as a family retreat and only one in four vacation-home buyers plan to rent their properties to others, while one in five investment buyers plan to use their homes for vacations or as a family retreat. What’s then interesting is that 26 percent of vacation-home buyers claim they intend to use the property as a primary residence in the future.
The market share of homes purchased for investment was 17 percent in 2009, down from 21 percent in 2008, while the vacation-home share rose a percentage point to 10 percent. The total share of second homes declined from 30 percent of sales in 2008 to 27 percent last year.
Further, the median transaction price of a vacation home was $169,000 in 2009, compared with $150,000 in 2008.
From an geographic point of view, half of vacation homes purchased last year were in the South, 21 percent in the West, 17 percent in the Midwest and 12 percent in the Northeast. Seven out of 10 were detached single-family homes.
The median investment property sold for $105,000 last year, down 2.8 percent from $108,000 in 2008. There were more investment sales in the West in 2009, consistent with reports in California of a high share of all-cash purchases, notably in lower price ranges.
The distribution of investment sales was fairly close to the distribution of population: 35 percent in the South, 25 percent in the West, 24 percent in the Midwest and 16 percent in the Northeast. There was a higher share of condos in investment sales: 27 percent of investment homes were condos vs. 21 percent of vacation homes.
Similar to 2008, cash factored strongly in the second-home market: three out of 10 vacation-home buyers in 2009 paid cash for their properties, while half of investment buyers paid cash. Fairly similar ratios for each group indicated portfolio diversification or good investment opportunities were factors in the purchase decision.
The typical vacation-home buyer in 2009 was 46 years old, had a median household income of $87,500, and purchased a property that was a median distance of 348 miles from their primary residence; 34 percent were within 100 miles and 40 percent were more than 500 miles.
Investment-home buyers last year had a median age of 45, earned $87,200, and bought a home that was relatively close to their primary residence – a median distance of 24 miles. Roughly one in four investment buyers purchased more than one property in 2009.
Three out of four second-home buyers were married couples.
Demographically, the long-term demand for second homes looks favorable because large numbers of people are in the prime years for buying a second home. It’s reasonably well known that people become interested in buying a second home in their mid 40s and there is now a large number of people who are now in their 30s and 40s will dominate the second-home market in the coming decade depending on the economy.
Unfortunately, one thing that will stifle demand is the fact that mortgage lending for second homes remains extraordinarily tight.
Currently, 40.1 million people in the U.S. are ages 50-59 – a group that dominated sales in the first part of the past decade and established records for second-home sales. An additional 44.4 million people are now in the primary buying demographic of 40-49 years old, and another 40.6 million are 30-39.
Buyers were more likely to purchase investment homes within a metropolitan area, while vacation homes were generally located in a rural area, small town or resort.
Vacation-home buyers plan to keep their property for a median of 16 years while investment buyers plan to hold their property for a median of 12 years.
NAR’s analysis of U.S. Census Bureau data shows there are 7.9 million vacation homes and 41.1 million investment units in the U.S., compared with 75.0 million owner-occupied homes.
Note: NAR’s 2010 Investment and Vacation Home Buyers Survey, conducted in March 2009, includes answers from 1,930 usable responses. The survey controlled for age and income, based on information from the larger 2009 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
To a degree, some of those buyers undoubtedly told a little white lie in my opinion. While they may have checked the lifestyle box to explain their purchase and give themselves some comfort, I don’t doubt that a high percentage also see the property as a good investment, too.
As I’ve always said, if you are thinking of buying a vacation home, now would be a great time to enter the market….providing you are in for the long haul.
For a more in depth look at in’s and out’s of the vacation home market take a look at my FREE report at www.BuyAnOrlandoVacationHome.com