Realtors: Second Homes Remain in Demand

By Research Staff
National Association of Realtors
In spite of the downturn in home buying activity in 2007, the share of second-home sales was still significant. A new report from NAR Research – The 2008 NAR Investment and Vacation Home Buyers Survey — shows that nearly a third of all homes purchased last year were bought as either vacation or investment homes.
Second-home Purchases
The combined total of vacation- and investment-home sales declined with the overall market in 2007, but still accounted for 33 percent of all existing- and new-home sales. That share is close to historic norms — the total share of second homes declined from 36 percent of transactions in 2006. The market share of homes purchased for investment in 2007 was 21 percent; another 12 percent were vacation homes.
Vacation-home sales dropped 30.6 percent to 740,000 in 2007 from a record 1.07 million in 2006, while investment-home sales fell 18.1 percent to 1.35 million last year from 1.65 million in 2006. At the same time, primary residence sales declined 10.0 percent to 4.34 million in 2007 from 4.82 million in 2006.
Behind the Numbers
There were several reasons behind the decline in second-home purchases. Second homes are generally discretionary purchases. Consequently, in periods of economic uncertainty, the tendency is to “pull back” from buying big-ticket items. Another major factor: disruption in the mortgage market. In the wake of the subprime mortgage crisis, there was a significant tightening of credit during the second half of 2007. Some potential second-home buyers simply put their purchase decision on hold.
Characteristics of Second Homes
The majority of second-home buyers purchased an existing home; 65 percent of vacation home purchasers and 71 percent of investment home purchases bought existing homes, while the remainder purchased new homes. Fifty-nine percent of vacation homes purchased in 2007 were detached single-family homes29 percent condominiums, 7 percent townhouses or rowhouses, and 5 percent other.
These results were noticeably different from those in 2006 when two thirds of vacation homes purchased were single-family homes (67 percent) and 21 percent were condominiums. There were no significant changes in the type of investment homes purchased compared with 2006 results.
Sixty-one percent of investment homes purchased in 2007 were detached single-family homes, 20 percent condos, 11 percent townhouses or row houses, and 8 percent other.
Twenty-eight percent of vacation-home buyers paid cash for their property, as did 35 percent of investment buyers. The median price of a vacation home was $195,000 in 2007, down 2.5 percent from $200,000 in 2006. The typical investment property cost $150,000 last year, unchanged from 2006.
Regionally, the South captured the largest share of second-home purchases. In 2007, 19 percent of vacation homes were purchased in the Northeast, 16 percent in the Midwest, 41 percent in the South and 24 percent in the West. In terms of location, 30 percent of vacation homes were purchased in rural areas, 20 percent in resorts, 20 percent in a suburb and 14 percent in an urban area or central city.
Second-home Buyers
Perhaps not surprising, second-home buyers are generally older than home buyers of primary residences and have higher incomes. The typical vacation-home buyer in 2007 was 46 years old, had a median household income of $99,100. Investment-home buyers had a median age of 42 and earned an income of $92,900. As is the case for home buyers in general, the majority of second-home buyers – 81 percent of vacation-home buyers and 76 percent of investment-home purchasers — were married-couple households.
Motivation for Buying a Second Home
In listing the reasons for purchasing a vacation home, 84 percent of buyers wanted to use the home for vacation or as a family retreat. Thirty percent planned to use the property as a primary residence in the future. More than a quarter (26 percent) of vacation-home buyers purchased their property to diversify investments; 25 percent to rent to others; 16 percent for the tax benefits; 14 percent for use by a family member, friend or relative; and 6 percent because they had extra money to spend.
When asked about the most important reasons for their purchase of an investment home, 51 percent of survey respondents indicated they made the purchase to provide rental income; 39 percent to diversify investments; 21 percent to use for vacations or as a family retreat; 16 percent for use by a family member, friend or relative; 11 percent for tax benefits; 10 percent to use as a primary residence in the future; and 4 percent because they had extra money to spend.
Future Plans
Vacation-home buyers plan to keep their property for a median of 10 years; 38 percent plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of four years, with 29 percent planning to keep for six years or more. However, 10 percent of investment buyers plan to sell in one year or less.
Eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 59 percent of primary residence buyers. Forty-four percent of vacation-home buyers and 57 percent of investment buyers said they were likely to purchase another property within two years.
*In March 2008, a random sample of households that had purchased any type of residential real estate during 2007 was surveyed. The survey sample was drawn from a representative panel of U.S. households monitored and maintained by an established survey research firm. A total of 1,965 qualified households responded to the survey accounting for 2,026 home purchases during 2007.
Households were sampled to meet age and income quotas representative of all home buyers drawn from the 2007 NAR Profile of Home Buyers and Sellers.