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Second-home owner survey shows solid market
WASHINGTON -- May 12, 2006 -- A new survey of second-home owners by the National Association of Realtors® (NAR) shows baby boomers continue to dominate the market, and a growing number of second homes -- more than one-in-10 -- are owned by minorities. A surprising majority of respondents own multiple properties in addition to their primary residence.
David Lereah, NAR’s chief economist, said the market continues to be dominated by the baby boom generation. “Middle-aged, middle-income households are the driving factor in the second-home market, with favorable demographics providing a solid fundamental demand in this sector for the next decade,” Lereah says. “Boomers believe in diversifying their assets, and most second-home owners see their purchase as being a better investment than stocks. A surprising majority of survey respondents hold multiple properties, and they are interested in purchasing additional homes.” About six in 10 respondents own two or more homes in addition to their primary residence.
Minorities have become more active in the market, accounting for 11 percent of vacation home purchases between 2003 and 2005 in contrast with 6 percent of purchases in 2002 or earlier. In the investment property segment, minorities accounted for 17 percent of transactions between 2003 and 2005 compared with 11 percent in 2002 or earlier.
An unexpectedly high number of vacation-home owners, 21 percent, own two or more vacation homes. In addition, 34 percent of vacation-home owners report they own two or more investment properties.
More than half of investment property owners, 53 percent, own two or more investment homes and 12 percent own two or more vacation homes.
Analysis of U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units.
NAR President Thomas M. Stevens said the term “second home” appears to be something of a misnomer. “The fact that so many owners of vacation homes and investment property have additional properties is a bit of a revelation,” says Stevens.
“We’ve always known that a certain segment has invested heavily in the rental market, and some people earn their living simply by holding and managing investment property. What we see now is a crossover between largely vacation- and investment-home owners, with people recognizing the value of those investments and pouring more assets into real estate,” Stevens says.
The typical vacation-home owner is 59 years old, earned $120,600 last year, and purchased a property that is 220 miles from their primary residence, though 34 percent were less than 100 miles and another 34 percent were 500 miles or more. Eight out of 10 drive to their property, and half of vacation homes are located within the same state as the owner’s primary residence. Eighty-three percent of owners are married couples.
Three-fourths of vacation-home owners purchased for personal use, although one-third also wanted to diversify investments, and 18 percent intended that the home would become a primary residence in retirement. Only 13 percent of vacation owners listed rental income as a reason to buy. The typical owner spends 39 nights per year at their property, and three-quarters do not rent out. Of those who do rent their vacation home, the median number is 12 nights per year.
The median age of an investment owner is 55, with an income of $98,600 in 2005; 75 percent of owners are married couples. Their investment property is located close by, within a median distance of 10 miles.
Two-thirds of investment-home owners purchased their property to generate rental income, and half viewed the property as a way to diversify investments. Eight out of 10 spend no time in their property. Not surprisingly, 80 percent rent it out, with 73 percent renting for at least six months per year.
For all second homeowners, their most recent property was purchased a median of six years ago. However, most have held additional properties for longer periods.
As for attributes desired in a vacation home, two-thirds want to be close to an ocean, river or lake; 39 percent close to recreational or sporting activities; 38 percent close to vacation or resort areas; and 31 percent close to mountains or other natural attractions.
Leisure activities of interest to vacation-home owners include beach, lake or water sports, 57 percent; boating, 38 percent; hunting or fishing, 32 percent; golf, 21 percent; biking, hiking or horseback riding, 20 percent; ski or winter recreation, 17 percent; and tennis, 9 percent.
Half of vacation homes are located in resort or recreational areas, 18 percent in small towns and 16 percent in rural areas. Four out of ten are detached single-family homes, 22 percent are cabins or cottages, 21 percent condos in buildings with five or more units, 7 percent a townhouse or row house, 5 percent a mobile or manufactured home, and 3 percent are located in two-to-four unit structures; 1 percent were other. Six percent said their vacation home was a timeshare unit.
The median size of a vacation home is 1,480 square feet, 29 percent were new when purchased, and owners estimated the current value to be a median of $300,000 – 68 percent said the value of that property was lower than their primary residence. Sixty-five percent of owners said their vacation property was a better investment than stocks.
Six out of 10 investment properties are located within metropolitan areas. Half are single-family homes, 21 percent are a duplex or apartment in a two-to-four unit structure, 13 percent condos in a building with five or more units, 8 percent a townhouse or row house, 3 percent a mobile or manufactured home, and 2 percent a cabin or cottage; 4 percent were other.
The median size of an investment property is 1,520 square feet, 15 percent were new when purchased, and owners estimated the current value to be $200,000. Three-fourths said the value of their investment property was lower than their primary residence, and 70 percent said their property was a better investment than stocks.
Four percent of vacation-home owners and 8 percent of investment owners said they intended for their child to occupy that property while in school.
Among buyers of second homes in recent years (since 2003), two-thirds purchased through a real estate agent. Eighteen percent of vacation homes and 17 percent of investment properties were purchased directly from owners, while 14 percent of vacation homes and 7 percent of investment properties were purchased directly from builders.
Thirty-two percent of all vacation-home owners and 24 percent of investment owners paid cash for their property. Combined with mortgages that have been paid-off, 82 percent of vacation homes and 75 percent of investment properties are owned free and clear.
Of owners who purchased with a mortgage, the median downpayment on a vacation home was 27 percent and the median downpayment for an investment home was 23 percent.
When asked about the source of downpayment funds for more recent vacation-home owners with loans, who purchased since 2003, half said savings, 23 percent from the sale of other real estate, and 19 percent identified equity or sales proceeds from their primary residence.
For more recent investment owners who purchased with mortgages, half said downpayment funds came from savings, 28 percent from equity or sales proceeds of their primary residence, and 18 percent from the sale of other real estate.
“With older baby boomers just now reaching 60 years of age, and younger boomers in their early 40s, the lifestyle preference of boomers will figure prominently into future demand for vacation homes,” Lereah says. Eleven percent of vacation-home owners said they were planning to buy another home within two years, and 10 percent said they planned to sell.
On the other hand, ownership of investment property hinges on financial gains that can be expected from rental income and appreciation. “Mortgage interest rates, local economic conditions and the local rental market are more important factors in investment decisions. Cooling appreciation rates and greater loan oversight are expected to discourage the speculative element in the investment market, although that is likely to be a relatively small portion of the overall market,” Lereah says.
Even so, 35 percent of all investment-home owners said they were planning to buy another home within two years. For those who currently own four or more investment units, 64 percent said they planned to buy another property within two years, and 17 percent said they planned to purchase five or more additional properties.
Twenty-eight percent of investment owners plan to sell a property within two years.
The 2006 National Association of Realtors® Profile of Second-Home Owners is based on an eight-page questionnaire mailed in January 2006 to a nationwide sample of 45,000 households who owned more than one residential property. It generated 416 usable responses from vacation-home owners and 619 from investment owners.
NAR sells the full study results, and it can be ordered online at www.realtor.org or by calling (800) 874-6500. The cost is $50 for NAR members and $125 for non-members.
© 2006 FLORIDA ASSOCIATION OF REALTORS®