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.