The share of homebuyers purchasing second homes remained steady in 2010 compared to the year before, though overall sales volume declined somewhat, according to an annual report from the National Association of Realtors.
NAR’s 2011 Investment and Vacation Home Buyers Survey includes 1,895 responses from households who bought residential real estate in 2010. The association conducted the survey in March 2011 and controlled for age and income.
The survey found that second-home purchases declined at the same rate as primary home purchases in 2010, both dropping 5.6 percent. Investment properties saw the bulk of that decline, falling 7.8 percent, compared to a 1.8 percent decline for vacation homes.
The percentages of investment purchases and vacation-home purchases to overall purchases remained the same as in 2009, at 17 percent and 10 percent, respectively.
"Despite extraordinarily tight credit conditions for purchasing a second home, the market share for vacation and investment homes held steady," said Lawrence Yun, NAR’s chief economist, in a statement. "A sizable number of buyers made deals with all-cash offerings."
More than half of investors (56 percent) did not use a mortgage to buy property, presumably paying in cash. More than a third (36 percent) of vacation-home buyers did not use a mortgage. About half of second-home buyers financed less than 70 percent of their purchase price.
The median sales prices for second homes fell more dramatically than the median price of primary homes. The median price for a primary residence fell 4.5 percent in 2010, to $176,700. At the same time, the median price for vacation homes fell 11.2 percent, to $150,000, and the median for an investment property fell 10.5 percent, to $94,000.
Eighty percent of vacation-home buyers and 77 percent of investors said now was a good time to purchase real estate, compared to 68 percent of primary-home buyers.
John Esplana, a certified mortgage planner at Bank of Commerce Mortgage in the San Francisco Bay Area, said he’s had three clients in the past six months who have decided to buy a second home after refinancing their primary residence. One couple bought a vacation home in South Lake Tahoe after going through their finances with a financial planner.
"They said they never thought they’d be able to buy a second home in Tahoe. We do see people — where they’ve got low mortgages, and recognize that home values are lower, and where it makes good financial sense and it’s toward what they want to accomplish in life" — buy a second home, Esplana said.
Randy Lewis, associate broker at Re/Max Professionals in Phoenix, said he has actually seen an increase in second-home purchases.
"I have seen the number of investment properties purchased in my market increased as prices have dropped to the point where cash flow and return on investment properties far exceeds the yield banks offer," Lewis said.
"Investment property seems to be more desirable to my clients than the stock market. I have created a special investment-property division on my team to fill the demand from investors to purchase rental property. Many of these clients are Realtors from the U.S. and (other countries)."
Michele Guss, an agent at Thompson’s Realty in Phoenix, said price declines have helped spur the area’s second-home market.
While her typical second-home buyers are cash buyers in search of a home for retirement, "I am seeing a trend of people in their late 40s and early 50s who are trying to purchase their second home or retirement home now, rather than wait, so they can take advantage of the low price points our current market offers," Guss said.
Gerry Bushnell, a broker at Keller Williams Realty, said he works with real estate investors who are buying in the Dallas-Fort Worth metro area.
"Buyers are still coming out of California but more and more investors are coming from Israel and other countries. My investors are paying cash for single-family homes. They buy foreclosures mostly, but short sales sometimes," Bushnell said.
As with primary residences, buyers under 45 made up the biggest share of second-home purchasers, though second-home buyers were more evenly distributed by age range, according to the survey.
While 67 percent of primary home purchasers were under 45, with a median age of 37, 40 percent of vacation-home buyers and 50 percent of investment-property buyers were under 45. The median age of a vacation-home buyer was 49, while the median age for an investor was 45.
"The effect of distressed sales on the market, in general, has allowed younger people to purchase properties for investments and for financial diversification. Investment properties are an excellent opportunity for this age and type buyer," said Alexis Eldorrado, managing broker at Eldorrado Chicago Real Estate.
"Vacation homes, as well as inexpensive investment properties, are very often all-cash purchases in the Chicago market. Many buyers of vacation homes are looking for value today due to the decreased prices. What may have not been an opportunity for them five years ago has become one today."
Not surprisingly, second-home buyers had substantially higher median household incomes than primary-home buyers. For vacation-home buyers, the median was $99,500, and for investors, the median was $87,600, while for primary-home buyers, the median was $69,600.
Second-home buyers, especially investors, were slightly more ethnically diverse than primary- home buyers, the survey found. Eighty percent of primary-home buyers were white, 9 percent were Asian, 6 percent were black, 6 percent were Hispanic, and 2 percent were "other."
Among buyers of investment properties, 75 percent were white, 15 percent were Asian, 7 percent were black, 7 percent were Hispanic, and 1 percent were "other."
Regionally, the South accounted for the biggest share of second home purchases, followed by the West.
|Region of Home Purchase||Primary
|Outside the U.S.||*||3%||3%|
Distance from primary residence varied widely among vacation home buyers and investors. For buyers of vacation homes, the median distance was 375 miles. For investors, the median was 19 miles.
The most popular purchase method for second-home buyers was through a real estate agent or broker, followed by buying directly from an owner the buyer knew.
|Through a real estate agent or broker||71%||54%||44%|
|Foreclosure or trustee sale||5%||11%||17%|
|Directly from owner whom the buyer knew||8%||19%||20%|
|Directly from owner whom the buyer didn’t know||5%||10%||9%|
|Directly from builder or builder’s agent||7%||3%||2%|
About a quarter of second-home buyers find their home on the Internet, and about the same share find it through a real estate agent, the survey revealed.