RUMORS OF A HOUSING BUBBLE DIDN'T scare off second-home buyers last year. Second-home sales hit an all-time high in 2005, with vacation and investment properties accounting for 40 percent of all residential transactions, according to the latest numbers from the National Association of Realtors (NAR). Vacation-home sales saw double-digit gains, increasing 16.9 percent, to 1.02 million, up from 872,000 in 2004.
Not surprisingly, boomers entering their peak earning years were a driving force, according to NAR research. The typical vacation-home buyer was 59 years old, earned an annual salary of $120,600, and purchased property 220 miles from a primary residence. Eight out of 10 homeowners said that they drove to their property, and half of vacation homes were located within the same state as the primary residence. However, 34 percent of survey respondents said that they bought less than 100 miles away, while another 34 percent bought 500 miles away or farther. A sizable 83 percent of second-home owners in the research were married couples. Three-quarters of them had no children under age 18 living at home.
“Middle-aged, middle-income households are the driving factor in the second-home market, with favorable demographics providing a solid fundamental demand for this sector for the next decade,” NAR chief economist David Lereah said in his analysis.
While some buyer attributes were predictable, others reflected shifts in the market. Minorities accounted for 11 percent of vacation-home purchases between 2003 and 2005, compared with just 6 percent in 2002 and earlier. Vacation-home ownership among Hispanics rose from 2 percent prior to 2003 to 7 percent of purchases between 2003 and 2005.
Detached homes remained most popular (41 percent), but other housing types proved to be making inroads. Buyers in the Midwest were more likely to own a cabin or cottage, while those in the South and the West were more likely to opt for an apartment or condo. The median vacation-home size was 1,480 square feet.
New homes made slight gains, accounting for 29 percent of the total vacation-home market. Buyers in the South and the West were more likely to purchase a new home (versus an existing home) for vacation purposes than buyers elsewhere.
All in all, second-home buyers proved more likely to come from regions where housing prices for primary residences are more affordable. The NAR study found that the largest concentration of vacation-home buyers hailed from the Midwest (33 percent), although their getaway destinations weren't necessarily in the same region. Buyers from the South accounted for 30 percent of vacation-home transactions, followed by 20 percent from the West and 13 percent from the Northeast.
Two-thirds of vacation-home buyers in the NAR survey said that they'd purchased through a Realtor, while 14 percent purchased directly from a builder, and 18 percent purchased directly from owners. Buyers in urban or central city areas were more likely to purchase directly from builders (23 percent) than were buyers in other settings.
Location remained a critical factor in purchasing decisions, with vacation buyers citing a desire for proximity to water (66 percent), recreational or sporting activities (39 percent), vacation or resort areas (38 percent), and mountains or other natural attractions (31 percent).
Lereah predicts that rising mortgage interest rates will deter some would-be buyers in the year ahead, although the vacation-home sector won't be hit as hard as the investment property landscape; 32 percent of the buyers in the study paid cash for their vacation spots. What remains to be seen is what will happen to excess inventories in resort locations now that demand has cooled slightly.
“Obviously, there are some areas where builders got caught with their pants down,” he says. “Some [new homes] are already in the pipeline, and it's too late to turn back, so builders are offering incentives. In doing so, they are effectively reducing the price of new homes. At the same time, you have people sitting on their investments in large resort homes and refusing to bring the price down for resale. That's lengthening days on market and increasing inventories even further.”