NEWS

2008 Second Home Sales Decline

Date: Mar. 30th, 2009
Contact: Walt Molony Phone: 202-383-1177

The combination of vacation- and investment-home sales slipped to 30 percent of all existing- and new-home transactions in 2008, according to the National Association of Realtors®.

However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision.

The market share of homes purchased for investment was 21 percent last year, unchanged from 2007, while another 9 percent were vacation homes, compared with a 12 percent market share in 2007. The total share of second homes declined from 33 percent of all transactions in 2007. In 2005, the peak year for home speculation, 40 percent of sales were second homes.

NAR’s 2008 Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.8 percent to 512,000 last year from 740,000 in 2007, while investment-home sales fell 17.2 percent to 1.12 million in 2008 from 1.35 million in 2007. Primary residence sales declined 13.2 percent to 3.77 million in 2008 from 4.34 million in 2007.

Lawrence Yun, NAR chief economist, said the findings are understandable given the economic backdrop. “We expected vacation-home sales to fall given the impact of a declining economy on discretionary purchases,” he said. “A steady share of investment-home sales results from buyers taking advantage of deeply discounted prices in many areas, with a smaller portion of new homes in the sales mix.”

Despite weakening second home purchases in 2008, the long-term demand looks favorable because there are large numbers of people in the prime years for buying a second home. Currently, 39.2 million people in the United States are ages 50 to 59 – a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.

“While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain,” Yun said. “Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade.”

The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28.0 percent below the 2007 median of $150,000.

“As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market as well,” Yun said.

In this environment, NAR says it’s important to work with a Realtor® who is knowledgeable about the local market to solve potential problems and navigate the transaction process.

Yun said lifestyle considerations are the single most important factor in the vacation home market. “People are buying weekend homes or recreational property to use themselves or for a family retreat – investment considerations are secondary for most vacation-home buyers with relatively modest interest in renting.”

The typical vacation-home buyer in 2008 was 46 years old, had a median household income of $97,200, and purchased a property that was a median of 316 miles from their primary residence; 35 percent were within 100 miles and 36 percent were 500 miles or more.

When asked about their reasons for purchasing a vacation home, 89 percent of buyers wanted to use the home for vacation or as a family retreat; 27 percent to diversify investments; 27 percent to rent to others; 26 percent to use as a primary residence in the future; and 17 percent for use by a family member, friend or relative.

In terms of location, 26 percent of vacation homes were purchased in small towns, 23 percent in a rural area, 23 percent in resorts, 20 percent in a suburb, and 8 percent in an urban area or central city.

Seventy percent of vacation homes purchased in 2008 were detached single-family homes, 18 percent condos, 5 percent townhouses or rowhouses, and 7 percent other.

Sixty-nine percent of vacation home buyers and 84 percent of investment home buyers purchased existing homes; the rest purchased new homes.

Investment-home buyers in 2008 had a median age of 47, earned $85,000, and bought a home that was fairly close to their primary residence – a median distance of 19 miles.

When asked about the most important reasons for purchasing an investment home, 58 percent said to provide rental income; 38 percent to diversify investments; 19 percent for use by a family member, friend or relative; and 15 percent to use for vacations or as a family retreat.

Twenty-eight percent of investment homes were purchased in a suburb and another 20 percent in an urban or central city area, 23 percent in a rural area, 22 percent in a small town, and 6 percent in a resort area.

Sixty-four percent of investment homes purchased in 2008 were detached single-family homes, 22 percent condos, 8 percent townhouses or rowhouses, and 6 percent other.

Vacation-home buyers plan to keep their property for a median of 12 years; 58 percent plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of five years.

Eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 71 percent of primary residence buyers.

The size of the second-home market is significant. NAR’s analysis of U.S. Census Bureau data shows there are 8.1 million vacation homes and 40.5 million investment units in the United States, compared with 75.5 million owner-occupied homes.

NAR’s 2008 Investment and Vacation Home Buyers Survey, conducted in March 2009, includes answers from 1,924 usable responses. The survey controlled for age and income, based on information from the larger 2008 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.