Second Homes - Vacation Homes Now 1/3 of Market
A friend, a social worker, has a bumper sticker:
"NO ONE SHOULD HAVE TWO HOUSES UNTIL EVERYONE HAS ONE."
Sorry, Susan, you have lost that battle. Lost it big.
A report issued last week by the National Association of Realtors (NAR)
indicates that the second home segment of the housing market is
much bigger than anyone had previously suspected. In fact, it is a stunner.
NAR cites two new studies showing that second home purchases are not only
growing, but represent a different market segment than previously
thought.
The studies show that 36 percent of all
homes purchased last year were second homes; a total of 2.82 million
second home sales. This was an increase of 16.3 percent from the 2.42 million
logged in 2003. But, what surprised the researchers was the stated purpose of
these purchases. The lion's share of second home purchases had always been
considered to be for recreational purposes. The new figures show that
investment home purchases represented 23 percent of the total
sales during the 203-2004 period, while only 13 percent were vacation
homes.
In real numbers, there were 1.80 million sales of investment properties in
2004, up 14.4 percent from 1.57 million in the previous year. Vacation home
sales were 102 million last year and 850,000 in 2003.
Have purchasing patterns changed? More likely it is the research
methodology.
David Lereah, Chief Economist for NAR said that earlier studies had
underestimated the number of second home sales because the methodology was
flawed. Surveys conducted by mail of home buyers resulted in a small percentage
being returned by the Post Office, apparently from non-owner occupied
properties. "...this is the first time," Lereah said, "that anyone has come up
with a methodology for capturing a representative market share for vacation and
investment home owners."
NAR's second-home study was based on two surveys. The organization mailed an
eight-page questionnaire to 100,000 homebuyers who purchased between mid-2003
and mid-2004. The survey generated 8,205 usable responses. "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 was used to determine market share and to extrapolate sales
date. This was conducted by email and captured data for 3,371 home purchases in
2003 and 2004. Data were weighted to correspond with demographic findings in the
mailed survey. Because the findings of this survey showed a much higher volume
of second home sales than anticipated, U.S. Census Bureau data were employed to
extrapolate the information collected through survey research.
Citing Census Bureau statistics from 2003, NAR states that there are 43.8
million second homes in this country; 6.6 million are vacation homes and 37.2
million are investment properties. There are a total of 72.1 million owner
occupied homes. That would indicate that 62% of the housing stock in the United
States is owned by persons who own other homes or housing units
Earlier studies had indicated that 6.6 million housing units were second
homes. Note that figure is identical to the number of homes the Census Bureau
considers to be vacation homes. Thus, earlier studies may have overlooked the
purchase and ownership of investment units. Census data indicates the latter may
total 37.2 million units.
"In essence, our definition of second homes has changed with the buyer shift
toward investment property," Lereah said. "...we see (now) that second homes are
a much larger share than the conventional mind-set of them being mostly vacation
homes."
There is probably an overlap between the investment and vacation home
categories. For example, 14 percent of vacation home buyers rent their property
as do 79 percent of investment buyers. Ten percent of investment buyers intend
to use their second homes for recreational purposes. One does not know how the
Census Bureau or NAR defined their terms in collecting information or how
respondents may view their second home ownership. Like most surveys, conclusions
may be somewhat at the mercy of respondent definitions and perceptions.
Regardless of the number of second, third, and fourth homes Donald Trump or
Martha Stewart may own, second home buyers are not necessarily in the high
roller category.
The typical vacation home buyer is 55 years old, earned $71,000 in 2003 and
spent $190,000 on a single-family, 1,290 square foot get-away property. 37
percent said that their recreational property is bigger than their principal
residence. Surprisingly, vacation homes have appreciated only 12.8 percent since
2001. (Just a guess, but this may represent the large numbers of mobile homes
purchased as recreational retreats in Sun Belt states.)
Investment buyers are younger and a little more affluent. Their median age is
47 and they have a median income of $85,700. They typically purchased a single
family home with a median square footage of 1,700. Their investment may have
made them even wealthier: investment properties have increased in value 25.4
percent in the last three years.
30 percent of buyers cited as a reason for their purchase a desire to
diversify investments while 28 percent were looking for rental income. Only 10
percent were looking for a personal or family retreat or a vacation spot. Nearly
20 percent of second home buyers intend to convert the properties to their
primary residence after retirement.
Investment buyers, probably keeping all of those warnings about being an
absentee landlord in mind, tend to buy properties within 18 miles of their
principal residence. Vacation homes buyers ventured farther away, buying second
homes 49 miles from their primary residence.
But, apparently, some people went a lot farther a field in search of a
vacation home. A 2003 study conducted by California-based EscapeHomes named the
top 10 emerging second home markets. They are not where one might expect. Only a
few are near the ocean and ten it is the frigid part. Only about half are
located in areas that can be considered even remotely temperate in climate.
Apparently skiing and shivering are a lot bigger attractions that one might have
thought,
The top five:
- Burnside Kentucky (encompassing Lexington & Frankfurt, Kentucky;
Nashville & Knoxville, Tennessee;)
- Caribou Maine/Quebec, Canada;
- Ely/Grand Rapids, Minnesota;
- Island Park, Idaho (including Bozeman, Montana and Jackson, Wyoming;
- Ketchikan, Alaska (including Juneau and Seattle, Washington.)
Thumbnail
Second homes constitute a much larger part of the housing market than anyone
expected. Investors, apparently, have never been considered as a major piece of
that market.