Second-home sales accounted for about 40 percent of all residential transactions in 2005, the National Association of Realtors reported today, eclipsing the 36 percent level reported in 2004.

The Realtor group’s annual report, based on two surveys, found that 27.7 percent of all homes purchased in 2005 were for investment and another 12.2 percent were vacation homes.

The trade group reported 3.34 million second-home sales in 2005, up 16 percent from a revised total of 2.88 million in 2004.

Vacation-home sales increased 16.9 percent last year to a record 1.02 million from a 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 million in 2004, according to the announcement.

In 2003, NAR reported 1.57 million investment-home sales and 850,000 vacation-home sales, for a total of 2.42 million second-home sales.

David Lereah, NAR’s chief economist, said in a statement, “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.”

In listing the reasons for purchase, 41 percent of vacation-home buyers said they would use the home for vacations, 31 percent said they would use it as a family retreat and 28 percent said the purchase was intended to diversify their investments. For investment-home buyers, 55 percent said rental income was the primary factor for buying and 35 percent wanted to diversify investments.

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 percent from $148,000 in 2004.

Thomas M. Stevens, NAR president and senior vice president of NRT Inc., said some “second home” purchases may actually be a third, fourth or fifth investment property. “The lion’s share of investment homes is actually the primary residence of a renter. Most investment owners are seasoned buyers who understand the long-term benefits of ownership, but not everybody is cut out to be a landlord,” he said in a statement.

About 4 percent of all homeowners hold three or more properties and 11 percent own two properties, according to the NAR announcement.

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. And about 47 percent of vacation homes were less than 100 miles away and 43 percent were 500 miles or more. Investment-home buyers last year had a median age of 49, an income of $81,400 and bought a home that was close by – a median of 15 miles from their primary residence.

More than 75 percent of vacation-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 vacation-home buyers purchased a property that their son or daughter can occupy while in school, the surveys revealed.

About 40 percent of vacation-home buyers said they value the property’s proximity to an ocean, river or lake; 34 percent said it was close to family members; 27 percent said it was close to preferred recreational activities; 27 percent said it was close to their primary residence; 26 percent said it was close to mountains; 24 percent said it was close to a preferred vacation area; and 17 percent said it was close to a job or school.

Activities of interest that affected the decision to buy a particular vacation home include beach, lake or water sports (37 percent); golf, 29 percent; theme parks, 18 percent; winter recreation, 16 percent; hunting or fishing, 12 percent; and boating, 9 percent. Smaller categories included gambling; biking, hiking or horseback riding; and tennis.

Midwest residents accounted for 33 percent of vacation-home sales, although the property may be located in another region. Buyers in the South accounted for 30 percent of vacation-home transactions; the West, 20 percent; and the Northeast, 17 percent, the Realtors group reported.

About 38 percent of investment-home buyers are in the South. Buyers in the Midwest and Western regions each purchased 24 percent of investment property, and buyers in the Northeast accounted for 15 percent of investment-home purchases.

One-third of vacation-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.

“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,” Lereah stated

He added, “Investment home sales are likely to decline this year, in part because of higher interest rates. 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. 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.”

NAR survey data shows that 2 percent of homes are sold in one year or less, though investment homes likely are under-represented in that particular reporting sample, according to the announcement.

Lereah said he 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. “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 million people 50-59 and 45.2 million people 40-49.

The second-home report is based on two surveys. One survey was conducted in March 2006 of a panel of recent home buyers, and included data for 3,406 home buyers in 2004 and 2005, with roughly equal samples for each year. These responses were weighted to correspond with demographic findings in an earlier mailed survey, the trade group reported.

To determine median home prices, most of the demographics and buyer preferences, NAR mailed an eight-page questionnaire to a national sample of 145,000 buyers who purchased their homes from mid-2004 and mid-2005 based on county records. That survey generated 7,813 usable responses, for a 5.4 percent response rate. Data in the second-home report only includes data from respondents who indicated that they purchased a vacation home or investment property.

A more extensive study, 2006 Profile of Second Home Owners, is under way and will be released in late spring, according to the announcement. This study will be based on a large sample of existing owners and will update NAR’s benchmark study of second-home owners that was published in 2002.

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