Talking Points: Second Homes

         According to data collected by the National Association of Realtors^®, the most trusted resource for real estate information, the second-home market, including vacation homes and investment property, accounted for 33 percent of all home sales in 2007, down from 36 percent of transactions in 2006.

Vacation sales are back to traditional levels, while investment transactions returned to pre-boom sales activity.

In 2007, buyers purchasing second homes primarily for investment accounted for 21 percent of home sales, while vacation homes made up 12 percent of all existing- and new-home sales. Sales in each segment declined more than the overall market last year.

The overall decline was expected because second homes are discretionary purchases, and there is a natural tendency to pull back from big-ticket items in periods of uncertainty. In addition, there was a disruption in the mortgage market with a significant tightening of credit during the second half of 2007.

The typical vacation-home price was $195,000 in 2007, down 2.5 percent from 2007, while the median investment home cost $150,000, the same as in 2006. Twenty-eight percent of vacation-home buyers paid cash for their property, as did 35 percent of investment buyers.

         Vacation- and investment-home purchases have followed different cycles over the past two years.

Investment-home sales declined sharply in 2006 as speculators disappeared, and the pattern continued in 2007 with an 18.1 percent decline to 1.35 million sales.

Vacation-home sales set a record in 2006 because there was pent-up demand from buyers who couldn’t find a property as a result of tight supplies in preceding years. In 2007, recreational property sales declined 30.6 percent.

         Second-home buyers know that homeownership offers immediate benefits and long-term value.

Eight in 10 second-home buyers in 2007 see their property as a good investment. In addition, 44 percent of all vacation-home buyers and 57 percent of investment buyers said they were likely to purchase another home within two years.

         Given strong demographic demand, the second-home market is expected to remain healthy for many years to come.

The size of the second-home market is significant. NAR's analysis of U.S. Census Bureau data shows there are 7.5 million vacation homes and 39.0 million investment units in the United States, compared with 75.2 million owner-occupied homes.

The long-term demand for second homes looks favorable because there are large numbers of people in their prime years for buying a second home. Currently, 38.7 million people in the United States are ages 50 to 59, 45.3 million people are between 40 and 49, and another 40.9 million are 30 to 39. These younger segments will drive the second-home market over the next decade.

Second-home buyers generally are middle-aged, middle-income households – many in the baby boomer generation. Vacation-home buyers, with a median age of 46 in 2007, plan to keep their home for a median of 10 years, while investment buyers, at a median age of 42, plan to hold their property for 4 years.

Baby boomers are still in their peak-earning years, have both the means and the desire to purchase second homes, and want to diversify their portfolio assets. In fact, an NAR study of the baby boomer population shows that diversifying portfolio investments is a significant motivation for purchasing a second home among this population, cited by 35 percent of investment buyers and 28 percent of vacation-home buyers.

        Buyers use real estate agents to find their second home.

In searching for a second home, 53 percent of vacation-home buyers and 52 percent of investment buyers purchased through real estate agents, but 15 percent of both vacation buyers and investment buyers purchased directly from an owner they knew in advance.

An earlier study, the 2006 NAR Profile of Second Home Owners, shows the typical buyer searched seven weeks to find their second home and looked at six properties.

         Vacation homes are in every state, with the most popular locations by the water or in the mountains. Most buyers prefer locations that are within an easy drive.

Most vacation-home owners want to use their property exclusively, and three-quarters of them report that they never rent their properties, according to the study of existing owners. A similar finding was reported among vacation-home buyers in 2007.

Vacation-home owners prefer to be close to where they spend recreational time or to natural attractions. Fifty-seven percent of second-home owners enjoy beach, lake or water sports; 38 percent go boating; 32 percent hunt or fish; 21 percent play golf; 20 percent like to bike, hike, or ride horses; and 17 percent enjoy winter recreation activities.

The typical vacation home was a median of 287 miles from the primary residence, while investment buyers bought a home that was fairly close to their primary residence – a median distance of 27 miles. Of vacation-home buyers, 30 percent said that this home would become their primary residence in the future, compared with 10 percent of investment buyers.

Updated: 05/8/08