Tuesday, May 01, 2007
The National Association of Realtors reported that overall second home sales declined in 2006, falling from 40 percent of all homes sold to just 36 percent - still relatively high by historical comparison.
Sales of vacation homes increased 4.7 percent while sales of investment property plunged 28.9 percent, part of a broader trend that has seen speculators flee the real estate market over the last year. In chart form, along with the three prior years of sales data culled from the NAR website, the situation looks like this.
David Lereah, outgoing NAR chief economist, says he saw this coming, noting that many of the Casey Serins of the world (soon to be living out of his car?) left the business of real estate investing in 2006 while recent vacation-home sales were based on "strong demographics and lifestyle factors".
Either that or last year's vacation home purchasers just hadn't yet heard that real estate prices don't always go up.
There were a number of interesting statistics released as part of the report. It doesn't take that much effort to whip up a couple of chart or tables - why don't they do that instead of providing an all-text news release?
The typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and purchased a property that was a median of 215 miles from their primary residence; 42 percent of vacation homes were closer than 100 miles and 32 percent were 500 miles or further.The full set of data has been requested from the NAR - there are probably some great multi-year mood swings that can be better represented graphically.
“The demographics favor vacation-home sales because large numbers of consumers are in the prime buying ages, and buyers want recreational property for personal use – investment is a secondary consideration,” Lereah said.
In listing the reasons for purchasing a vacation home, 79 percent of buyers wanted to use the home for vacation or as a family retreat; 34 percent to diversify investments; 28 percent to use as a primary residence in the future; 25 percent for the tax benefits; 22 percent for use by a family member, friend or relative; 21 percent because they had extra money to spend and 18 percent to rent to others.
Investment-home buyers last year were a median age of 39, earned an income of $90,250, and bought a home that was fairly close to their primary residence – a median of 22 miles.This survey is performed only once a year. The 2007 data should really be interesting - even without the comments provided by their current chief economist.
When asked about the most important reasons for their purchase of an investment home, 46 percent said to provide rental income; 43 percent to diversify investments; 23 percent for tax benefits; 18 percent to use for vacations or as a family retreat; 15 percent because they had extra money to spend; 13 percent for use by a family member, friend or relative; and 12 percent to use as a primary residence in the future.
Twenty-five percent of vacation-home buyers paid cash for their property, as did 32 percent of investment buyers. An unusually high number of respondents in this survey report purchasing new homes: 44 percent of vacation-home buyers and 36 percent of investment-home buyers.
The median price of a vacation home in 2006 was $200,000, down 2.0 percent from $204,100 in 2005. The typical investment property cost $150,000 last year, down 18.3 percent from $183,500 in 2005.
“The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling,” Lereah said. “It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts. This underscores that housing should always be viewed as a long-term investment, providing solid returns over time."