Sales of investment homes surged by what the National Association of Realtors® (NAR) called "an extraordinary 64.5 percent" in 2011, soaring from 749,000 the previous year to 1.23 million. NAR said these sales coupled with the sales of vacation homes brought the market share of non-primary residence properties to the highest level since 2005.
According to NAR's 2012 Investment and Vacation Home Buyers Survey released this morning, vacation home sales were also up for the year, rising 7.0 percent to 502,000 units from 469,000 in 2010. At the same time the sale of owner-occupied homes fell 15.5 percent to 2.78 million. Together the two types of sales made up more than one-third of the residential market with vacation homes sales accounting for 11 percent of all transactions, up from 10 percent in 2010, while investment sales garnered a 27 percent share, up from 17 percent the previous year.
NAR Chief Economist Lawrence Yun said, "During the past year investors have been swooping into the market to take advantage of bargain home prices. Rising rental income easily beat cash sitting in banks as an added inducement. In addition, 41 percent of investment buyers purchased more than one property."
Yun said the shift in investment buyer patterns in 2011 shows the market, for the large part, is able to absorb foreclosures hitting the market. "Small-time investors are helping the market heal since REO (bank real estate owned) inventory is not lingering for an extended period. Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas. Even where alternatives are needed, it's best to rely on the expertise of local businesses, nonprofit organizations and government," he said.
Nearly half of investment purchases were for cash as were 42 percent of vacation sales. Distressed properties constituted half of all investment home purchases and 39 percent of vacation home sales.
"Clearly we're looking at investors with financial resources who see real estate as a good investment and who aren't hesitant to use cash," Yun said. Of buyers who financed their purchase with a mortgage, large downpayments were typical. The median downpayment for both investment- and vacation-home buyers in 2011 was 27 percent.
The median investment-home price was $100,000 in 2011, up 6.4 percent from $94,000 in 2010, while the median vacation-home price was $121,300, down 19.1 percent from $150,000 in 2010. Investors tended to favor properties in suburban areas while vacation home buyers bought in both rural and suburban areas.
Investment home buyers had a median age of 50, an income of $86,100, and bought a home relatively close to their primary residence, a median distance of 25 miles. The typical vacation home buyer was also 50 with a median income of $88,600. These buyers bought a median of 305 miles away from home although 37 percent purchased a property more than 500 miles from their primary residence.
The typical vacation home buyer plans to own the property for a median of 10 years and 30 percent of the investment properties were bought by buyers anticipating they would eventually be their primary residences. The typical investment buyer plans to hold the property for 5 years (down from 10 years in 2010.) Yun said that the share of investment buyers who flipped the property remained low in 2011 and many of those homes were renovated before they were sold. Five percent of homes purchased as investments had been resold by the time the report was issued.
The South was the preferred location for vacation homes, accounting for 42 percent of those purchased last year. Thirty percent were located in the West, 15 percent in the Northeast, 12 percent in the Midwest and 1percent was located outside the U.S. Forty-four percent of investment properties were in the South, 23 percent in the West, 17 percent in the Midwest and 15 percent in the Northeast.
Currently, 42.1 million people in the U.S. are in the 50-59 age group, one that has dominated second-home sales since the middle part of the past decade. An additional 43.5 million people are 40-49 years old, while another 40.2 million are 30-39.
Yun said, "Given that the number of people who are in their 40s is somewhat larger than the 50-somethings, the long-term demographic demand for purchasing vacation homes is favorable because these younger households are likely to enter the market as their desire for these kinds of properties grows, and individual circumstances allow."
Nearly half of investment buyers said they were likely to purchase another property within two years, as did one-third of vacation-home buyers.
NAR's analysis of U.S. Census Bureau data shows there are 8.0 million vacation homes and 42.8 million investment units in the U.S., compared with 75.3 million owner-occupied homes.