A major slide in investment-home purchases in 2006 compared to the prior year was partially offset by a rise in vacation-home purchases, the National Association of Realtors trade group reported today.
The annual Investment and Vacation Home Buyers Survey also found that vacation-home sales increased 4.7 percent in 2006 to a record 1.07 million, while investment-home sales dropped 28.9 percent to 1.65 million in 2006 from a record 2.32 million in 2005.
Total primary-home sales, meanwhile, dropped 4.1 percent in 2006 to 4.82 million.
Second-home sales accounted for 36 percent of all existing-home and new-home sales in 2006, down from a 40 percent share in 2005, NAR reported. Investment-home sales dropped from a 28 percent share in 2005 to a 22 percent share in 2006, while vacation-home sales rose from a 12 percent share in 2005 to a 14 percent share in 2006.
The survey, conducted in April 2007, includes answers from 1,412 respondents and reflects 1,729 homes purchased in 2006. Of these, 1,106 were primary residences and the remainder were vacation and investment purchases, NAR reported. The survey controlled for age and income, based on information from NAR’s 2006 Profile of Home Buyers and Sellers, in an effort to limit biases in respondents’ characteristics.
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, according to the report.
The median sales price of vacation properties dropped 2 percent in 2006 to $200,000, and the median price of investment properties dropped 18.3 percent to $150,000 compared to the prior year, NAR reported.
The survey found that 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.
Investment-home buyers last year were a median age of 39, earned an income of $90,250, and bought a home that was within a median of 22 miles of their primary residence.
In its 2005 second-home buyer survey, NAR reported that there were 36 million people ages 50-59 in the United States and the median age of vacation-home buyers was 52.
About 79 percent of buyers of vacation homes who participated in the survey stated that they wanted to use the home for vacation or as a family retreat; 34 percent said it was 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.
HomeAway Inc., an online vacation rental company, said in a statement today that the company’s own research shows that many vacation-home buyers “do not initially intend to rent their second home, they choose to do so after a year or so of ownership, discovering they do not use the home as often as intended and it is more expensive than anticipated.”
Also, the company reported that slowing price appreciation or retreating prices are leading buyers of investment properties to rent homes as vacation properties to cover ownership costs until housing prices improve.”
According to NAR’s survey, 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 row houses, 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.
Meanwhile, 46 percent of the surveyed buyers of investment homes stated that they purchased the homes 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 row houses, and 5 percent other, the survey found.
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 association reported.
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.
While the demand for vacation homes tends to follow suit with trends in the primary residential market, that is not the case in the current market environment, said David Hehman, president of EscapeHomes, an online marketplace for vacation properties and second homes.
The interest in vacation homes is strong despite a slowdown in the overall real estate market, he said, with high search-activity traffic for vacation homes at the Web site.
The company, which offers a searchable database of real estate professionals who work with vacation properties, has a relationship with about 300 Realtors, Hehman said, and “What we hear back from them is that markets are much more rational in terms of supply and demand and are more in equilibrium. People … are more able to find what they want.”
There seems to be less interest from investment-home buyers these days, Hehman also said.
Vacation-home buyers typically are interested in purchasing homes near water and in locations with good weather, he said, as well as in rural and remote locations. Florida and the Southern states are among the most popular destinations for second-home buyers he said.
Rex Anderson, a Realtor for Coastal Realty Group in Port St. Joe, Fla., said that about 90 percent of the property sales he works with are for second homes, adding that the overall sales market in the region has been slow for the past couple of years and has just started to pick up again this spring.
The Atlanta market “probably accounts for 70 percent of the people who come here either to vacation or purchase,” he said, and it’s also common to see buyers from the Tallahassee, Fla., area.
Most sales involve single-family properties, he said, and coastal properties are particularly popular with second-home buyers. “Target properties are really anything close to the beach — there is a lot of interest these days in view properties,” he said.
Europeans have been snatching up properties in other parts of the state but this influx hasn’t impacted the Port St. Joe market much yet, Anderson said. “We have started to advertise overseas. We know from a financial perspective that investments over here are very attractive to the European market … I think (overseas interest) is going to be more of a factor going ahead.”
Also, the local market is not seeing that much interest from speculators and flippers these days, he said. “I don’t think many people are buying to flip in the short-term.”
It’s still possible to profitably purchase a home as a vacation-rental investment, he said, as long as the property is “at the lower end of the price curve” and is extensively marketed. “It depends how hard they work at it. My wife and I work very hard at making sure our rentals are marketed correctly. We’ve got two first-year homes here that both do over $75,000 a year in gross rental (income),” he said.
Sale prices have cooled dramatically for some properties — Anderson said he was involved this year in the sale of a $1 million Gulf-front home that two years ago would have sold for closer to $2 million.
Erin Eddy, managing broker for Ouray Realty and Investments, said his market area — about 45 minutes from the popular Telluride resort area in Colorado — is popular for vacation-home purchases.
Prices in the Ouray market rose from about $150 per square foot in 2000 and 2001 to about $335 per square foot from 2002-05.
But in the past couple of years the market has slowed dramatically, with a nearly 50 percent drop in the number of sales and sales volume while prices have continued to rise somewhat.
Developers added some townhomes and condos to the mix during the last surge in the local market, Eddy said.
“The big thing that we’re seeing right now — there is such a disparity now as to what people think property is worth and what an investor is willing to pay, and that’s driving our reduction in sales,” Eddy said.
The vacation-home purchases are largely driven by buyers from Texas, Florida, California and the East Coast, he said — “the same places you would see in other resort areas,” while Californians seem to account for a large share of the investment-home purchases.
According to the NAR survey, about 78 percent of vacation-home buyers and 68 percent of investment buyers participating in the survey are married couples. Single men purchased 11 percent of vacation homes and 17 percent of investment property while other household categories are in the single digits.
Whites 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, according to the report.
Sixty percent of vacation-home buyers and 54 percent of investment buyers purchased through a real estate agent or broker, while 20 percent of vacation buyers and 17 percent of investment buyers purchased directly from an owner they knew.
Eight in 10 second-home buyers participating in the survey said they considered it a good time to invest in real estate, compared with 57 percent of primary residence buyers. Fifty-five percent of vacation-home buyers and 66 percent of investment buyers said they were likely to purchase another property within two years.
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.
A separate survey, the 2006 National Association of Realtors Profile of Second-Home Owners, found that two-thirds of current owners most desired a vacation home 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, NAR reported.
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.
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