It seems impossible to get a clear look at the housing situation these days. Where there is hope there is despair, if good news there is bad, existing home sales plummet while new home sales climb toward recovery, ying begets yang. And in that spirit, The National Association of Realtors (NAR) just released its annual report on the sales of what we will call "additional homes," that is vacation residences and residential investment properties.

According to NAR's Investment and Vacation Home Buyers Survey, the sale of vacation homes rose 4.7 percent to a record 1.07 million units last year. In 2005 1.02 million vacation homes were sold. However, the sale of investment homes fell a stiff 28.9 percent to 1.65 million units from 2.32 million in 2005. The latter figure is even starker when compared to the sales of primary residences which were down 4.1 percent from 5.02 million in 2005 to 4.82 million last year.



Sales of "additional" homes accounted for 36 percent of all residential transactions in 2005 compared to 40 percent of all sales in 2005 but homes purchased for investment went from a 28 percent market share in 2005 to 22 percent while vacation homes accounted for 14 percent of purchases compared to 12 percent in 2005.

NAR's chief economist David Lehreah pointed out that the drop in investment homes was much greater than the decline in primary residence sales. "We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market, but the rise in vacation-home sales is based on strong demographic and lifestyle factors, [among those] with only modest interest in renting their properties to others."

So who is buying these two types of additional housing?

Vacation homes were typically purchased by a buyer who was 44 years old (a sharp change from 2005 when the median age was 52) with a median household income of $102,200. The property was located a median of 215 miles from his primary residence; 42 percent of vacation homes were closer than 100 miles and 32 percent were 500 miles or further.

In case you wondered how many people can easily afford second homes, Lereah has a bit of disquieting information. "Second homes are really something of a misnomer," he said, "because a fair number of respondents buy multiple properties. Eighty-six percent of vacation buyers purchased one vacation home, 12 percent purchased two homes and 2 percent purchased three or more vacation properties."

"The demographics favor vacation-home sales because large numbers of consumers are in the prime buying ages, and buyers want recreational property for personal use - investment is a secondary consideration," Lereah said.

Seventy nine percent of buyers planned to use their purchase for vacations or as a family retreat; 34 percent to diversify investments; 28 percent for a primary residence in the future; 25 percent for the tax benefits; 22 percent for use by a family member, friend or relative; 21 percent because they had extra money to spend and 18 percent to rent to others.

Twenty nine percent of vacation homes were purchased in rural areas, 24 percent in resorts, 22 percent in a suburb and 10 percent in an urban area or central city. Sixty-seven percent were detached single-family homes, 21 percent condos, 8 percent townhouses or row houses, and 4 percent other. One-quarter were purchased in the Northeast, 13 percent in the Midwest, 38 percent in the South and 25 percent in the West.

Investment-home buyers fit a different demographic. The median age last year was 39 and the median income was $90,250. Investment buyers stuck close to home, buying property that was a median of 22 miles from their primary residence. 46 percent of investors bought to provide rental income; 43 percent to diversify investments; 23 percent for tax benefits; 18 percent to use for vacations or as a family retreat; 15 percent because they had extra money to spend; 13 percent for use by a family member, friend or relative; and 12 percent to use as a primary residence in the future.

Thirty-seven percent of investment homes are located in a suburb, 22 percent in a rural area, 18 percent urban or central city, and 7 percent in a resort area. Sixty-three percent are detached single-family homes, 26 percent condos, 6 percent townhouses or row houses, and 5 percent other.
Twenty-four percent of investment properties were purchased in the Northeast, 17 percent in the Midwest, 39 percent in the South and 20 percent in the West.

The median price of a vacation home in 2006 was $200,000, down 2.0 percent from $204,100 in 2005 and the typical investment property cost $150,000 down 18.3 percent from $183,500 in 2005. Twenty-five percent of vacation-home buyers paid cash for their property, as did 32 percent of investment buyers. An unusually high number of respondents in this survey report purchasing new as opposed to existing homes: 44 percent of vacation-home buyers and 36 percent of investment-home buyers.

Lereah said that the drop in investment prices comes as no surprise and may in part be attributable to investors shifting focus from the pricier markets like Florida and Nevada to more affordable locations in Idaho, Georgia, and the Carolinas. "But for vacation-home prices to edge down in a record market is a bit puzzling," Lereah said. "It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts. This underscores that housing should always be viewed as a long-term investment, providing solid returns over time."

Sixty-three percent of investment buyers purchased one investment property, 23 percent bought two properties, 9 percent bought three investment homes, 2 percent purchased four properties and 2 percent bought five or more investment homes. Most second-home buyers are married couples, including 78 percent of vacation-home buyers and 68 percent of investment buyers. Single men purchased 11 percent of vacation homes and 17 percent of investment property.

Second home buyers were overwhelmingly Caucasian. They bought 78 percent of all vacation and investment properties while African Americans purchased 8 percent of vacation-homes and 10 percent of investment properties, Asians accounted for 6 percent of vacation-home purchases and 7 percent of investment properties, and Hispanics bought 9 percent of vacation properties and 8 percent of investment homes.

NAR's 2006 Investment and Vacation Home Buyers Survey, conducted in April 2007, includes answers from 1,412 respondents, reflecting 1,729 homes purchased in 2006. Of these, 1,106 were primary residences; the remainder being vacation and investment purchases.