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Boomers, Seniors Drive Surge in Vacation Home Buying
Second homes, investment buys were 36 percent of all
home sales in 2004
March 1, 2005 – The older baby boomers and senior
citizens, more closely identified as persons 55 or older and earning and
average of $71,000 per year, were the driving force in a surge of
vacation home buying in 2004 – up 16.3 percent from 2003 and 13 percent
of all homes bought in 2004. This surge, however, was topped by
investment home purchases, which were 23 percent of all sales and up
14.4 percent, according to a new study.
The typical investment buyer had a median age of 47
and earned $85,700.
The study shows sales of second homes surged in
2004, and that investment property and vacation homes make up a
significant portion of the overall housing market, accounting for more
than one-third of residential transactions, according to the National
Association of Realtors.
Based on two surveys, the study shows that 23
percent of all homes purchased in 2004 were for investment, while
another 13 percent were vacation homes.
In addition, there was a record of 2.82 million
second home sales in 2004, up 16.3 percent from 2.42 million 2003.
The investment-home component rose 14.4 percent to
1.80 million sales in 2004 from 1.57 million in 2003, while
vacation-home sales rose 19.8 percent to 1.02 million in 2004 from
850,000 in 2003.
David Lereah, NAR's chief economist, said earlier
studies underestimated the number of second-home sales because a very
small percentage of surveys mailed to second-home addresses were
returned.
"We found excellent results for studies looking at
owner-occupied homes, but this is the first time anyone has come up with
a methodology for capturing a representative market share for vacation-
and investment-home owners," he said. "In fact, given the size of the
market, we can assume that many individual owners have more than one
investment property."
Previous studies had indicated the total stock of
second homes purchased for investment or recreation was 6.6 million
units. "The lion's share of second-home sales in earlier studies were
vacation homes, and previously reported figures for the total number of
second homes in the U.S. coincide with the current figures we have for
the number of vacation homes," Lereah said.
"However, we've seen a shift over the last few
years with a growing number of second-home buyers purchasing primarily
for investment. This led us to a new examination and understanding as to
how much larger investment homes are as a share of the overall housing
market."
An examination of 2003 data from the Census Bureau
shows there are 43.8 million second homes in the United States,
including 6.6 million vacation homes and 37.2 million investment units,
compared with 72.1 million owner-occupied homes.
"In essence, our definition of second homes has
changed with the buyer shift toward investment property," Lereah said.
"In examining Census data to determine the number of investment units,
we see that second homes are a much larger share than the conventional
mind-set of them being mostly vacation homes."
NAR has no data to differentiate between individual
or corporate investment-home owners of the existing housing stock. The
sales figures shown in the study are for individual buyers, and the
market share of investment purchases rose 1 percentage point in 2004
from 22 percent of transactions in 2003. An e-mail survey of home
buyers, incorporating new methodology, was used to determine second-home
sales data.
A second survey, conducted by mail and used for
demographic and related data in the 2005 National Association of
Realtors(R) Profile of Second-Home Buyers, underscores the e-mail
findings.
NAR President Al Mansell, CEO of Coldwell Banker
Residential Brokerage in Salt Lake City, said the market is evolving.
"We're finding that the distinctions between vacation- and
investment-home buyers are such that we're really looking at two very
different markets," he said.
For example, 86 percent of vacation-home buyers do
not rent their property compared with only 21 percent of investment
buyers. It appears that the majority of investment homes are actually a
renter's primary residence, and only 10 percent of investment buyers
intend to use their second property for recreational purposes.
For properties purchased between mid-2003 and
mid-2004, the median price of a vacation home was $190,000 compared with
$148,000 for investment homes. In contrast with the last available
full-year price data in 2001, vacation homes have appreciated 12.8
percent from $168,500, and investment homes have risen 25.4 percent from
$118,000.
Nearly one out of five second homes will become
primary residences after retirement - 27 percent of vacation homes and
14 percent of investment property. "In addition, buyers were looking to
diversify portfolio investments," Mansell said. "This is now the most
frequently cited motivation for purchasing a second home."
In listing the reasons why they bought second
homes, respondents said there were some differences depending on the
type of home. Overall, 30 percent of buyers wanted to diversify
investments, 28 percent sought rental income (37 percent investment vs.
7 percent vacation homes), 14 percent wanted a personal or family
retreat (29 percent vacation vs. 8 percent investment), 6 percent
planned to use for vacations (16 percent vacation vs. 2 percent
investment), and 5 percent had extra money to spend.
"Because the typical second-home buyer is a baby
boomer, it's likely over the next decade that second-home sales will
remain historically high," Lereah said. "The boomers are still in their
peak earning years and have both the wherewithal and the desire to
purchase vacation homes and investment properties."
Ninety-two percent of all second-home buyers see
their property as a good investment. In addition, 38 percent said it was
very likely they'd purchase another home within two years, breaking down
to 47 percent of investment buyers and 16 percent of vacation-home
buyers.
Investment properties of recent buyers tend to be
located close to the primary residence of owners, with a median distance
of 18 miles, while vacation home buyers were at a median distance of 49
miles.
The typical vacation home purchased during the
period was a single-family detached home, accounting for 83 percent,
with a median size of 1,290 square feet. Half of all buyers said their
vacation home was smaller than their primary residence, 13 percent said
about the same and 37 percent reported it was larger.
The typical investment property also was a
single-family home, 79 percent, with a median size of 1,700 square feet.
Sixty-two percent of recently purchased investment homes were smaller
than the owner's primary residence.
In searching for a second home, 83 percent of
buyers used real estate agents. When asked where they first learned
about the home purchased, 31 percent said a real estate agent; 24
percent a yard sign; 15 percent from a friend, neighbor or relative; 8
percent knew the seller; 7 percent from a builder; 6 percent on the
Internet; and 2 percent from a newspaper or TV ad.
Typical buyers searched seven weeks to find their
second home and looked at six properties. Eighty-three percent financed
with a mortgage and made a median downpayment of 22 percent. Although 45
percent use savings for a downpayment, 29 percent used equity from a
previous home.
Methodology
The second-home study was based on two surveys. To
determine demographics, price data and the process for buying, NAR
mailed an eight-page questionnaire to a national sample of 100,000
recent homebuyers who purchased their homes between mid-2003 and
mid-2004 based on county records. The survey generated 8,205 usable
responses; the response rate was 8.2 percent. Data in this report
includes only survey data from respondents who indicated that they
purchased a vacation home or investment property; this data was
underrepresented in the overall sample due to smaller return rates.
A second survey to determine market share and to
extrapolate sales data was conducted in January 2005 by e-mail. That
survey captured data for 3,371 home purchases in 2003 and 2004, with
roughly equal samples for each year; data were weighted to correspond
with demographic findings in the mailed survey. Because the findings
showed a much higher volume of second-home sales than earlier believed,
NAR examined Census Bureau data from the Housing Vacancy Survey and the
Residential Finance Survey and found a strong correlation in comparing
the differences between owner-occupied and renter-occupied housing, as
well as data for occasional use and vacant housing.
The 2004 National Association of Realtors(R) of
Profile of Second-Home Buyers can be ordered by calling 800/874-6500.
The cost is $35 for NAR members and $50 for non-members.
The National Association of Realtors(R), "The Voice
for Real Estate," is America's largest trade association, representing 1
million members involved in all aspects of the residential and
commercial real estate industries.
Information about NAR is available at
http://www.realtor.org. This and other news releases are posted in
the Web site's "News Media" section in the NAR Media Center. Statistical
data, charts and surveys also may be found in the NAR Media Center by
clicking on Economic & Housing Statistics.
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