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NAR Study: Second Homes Apoppin 4.19.2006

By C.M. Mattessich

NAR Study:  Second Homes Apoppin’
Vacation and investment-home sales set records in 2005, with the combined total of second home sales accounting for four out of ten residential transactions, according to the National Association of Realtors (NAR)
The NAR’s annual second-home buyer report, based on two surveys, shows that 27.7 percent of all homes purchased in 2005 were for investment and another 12.2 percent were vacation homes.  All told, there were 3.34 million second home sales in 2005, up 16 percent from a 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.
Vacation-home sales increased 16.9 percent last year to a record 1.02 million, while investment-home sales rose 15.7 percent to a record 2.32 million in 2005.
David Lereah, NAR’s chief economist, said all the factors at play in the second home market were favorable in 2005.
“The baby boomer generation is driving second home sales,” he said.  “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 describing their reasons for purchase, 41 percent of vacation-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 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.
Typical vacation home buyers in 2005 were 52 years old and earned $82,800;  investment-home buyers had a median age of 49 and an income of $81,400.
More than three-fourths 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.
In describing characteristics that vacation home buyers value about their property, 40 percent said close to an ocean, river or lake; 34 percent close to family members; 27 percent close to recreational activities; 27 percent close to their primary residence; 26 percent close to mountains; 24 percent close to a vacation area; and 17 percent close to a job or school.
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 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.”
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,” Lereah said.

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