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Second home market surges
A new study shows that sales of second homes surged in 2004, and
that investment property and vacation homes make up a significant
portion of the overall housing market, accounting for more than
one-third of residential transactions, according to the National
Association of Realtors (NAR).
The new study, based on two surveys, shows that 23 percent of
all homes purchased in 2004 were for investment, while another 13
percent were vacation homes. In addition, there was a record of
2.82 million second home sales in 2004, up 16.3 percent from 2.42
million in 2003. The investment home component rose 14.4 percent to
1.80 million sales in 2004 from 1.57 million in 2003, while
vacation home sales rose 19.8 percent to 1.02 million in 2004 from
850,000 in 2003.
David Lereah, NAR's chief economist, said earlier studies
underestimated the number of second home sales because a very small
percentage of surveys mailed to second home addresses were
returned. Previous studies had indicated the total stock of second
homes purchased for investment or recreation was 6.6 million
units.
An examination of 2003 data from the Census Bureau shows there
are 43.8 million second homes in the United States, including 6.6
million vacation homes and 37.2 million investment units, compared
with 72.1 million owner-occupied homes.
The sales figures shown in the study are for individual buyers,
and the market share of investment purchases rose one percentage
point in 2004 from 22 percent of transactions in 2003. An e-mail
survey of homebuyers was used to determine second-home sales data.
A second survey, conducted by mail and used for demographic and
related data in the 2005 NAR Profile of Second Home Buyers,
underscores the e-mail findings.
NAR President Al Mansell said the market is evolving. "We're
finding that the distinctions between vacation and investment
homebuyers are such that we're really looking at two very different
markets," he said.
For example, 86 percent of vacation homebuyers do not rent their
property compared with only 21 percent of investment buyers. It
appears that the majority of investment homes are actually a
renter's primary residence, and only 10 percent of investment
buyers intend to use their second property for recreational
purposes.
For properties purchased between mid-2003 and mid-2004, the
median price of a vacation home was $190,000 compared with $148,000
for investment homes. In contrast with the last available full-year
price data in 2001, vacation homes have appreciated 12.8 percent
from $168,500, and investment homes have risen 25.4 percent from
$118,000.
In listing the reasons why they bought second homes, respondents
said there were some differences depending on the type of home.
Overall, 30 percent of buyers wanted to diversify investments, 28
percent sought rental income (37 percent investment versus seven
percent vacation homes), 14 percent wanted a personal or family
retreat (29 percent vacation versus eight percent investment), six
percent planned to use for vacations (16 percent vacation versus
two percent investment), and five percent had extra money to
spend.
Ninety-two percent of all second homebuyers see their property
as a good investment. In addition, 38 percent said it was very
likely they'd purchase another home within two years, breaking down
to 47 percent of investment buyers and 16 percent of vacation home
buyers.
NAR launches housing market indicator
After several years of study and data collection, NAR has developed
the Pending Home Sales Index (PHSI), a new indicator for the
housing market. The index promises to provide advance information
on future home sales activity and more solid information on changes
in the direction of the market.
The PHSI, based on data collected for January, stands at 120.6,
which was 2.1 percent below December 2004 but 8.6 percent higher
than January 2004. The index is based on pending sales of existing
homes, including single-family, condo and co-op. A home sale is
deemed pending when the contract has been signed but the
transaction has not closed. Pending sales will typically close
within one or two months of contract signing.
The index is based on a large national sample, representing
about 20 percent of home sales. In developing the model for the
index, it was demonstrated that the level of monthly sales contract
activity from 2001 through 2004 closely parallels the level of
closed existing home sales in the following two months. The
modeling for the index received input from the Federal Reserve
Board and independent housing analysts.
Regionally, the PHSI in the Northeast rose 3.7 percent to 105.9
in January and was 1.2 percent higher than a year earlier. In the
West, the index of 135.3 rose 1.9 percent from December and was
21.8 percent higher than January 2004. The index in the Midwest
declined 4.5 percent in January to 113.5 but was 2.4 percent higher
than a year ago. In the South, the index fell 5.6 percent to 123.2
in January but was eight percent above January 2004.
For more information, visit www.realtor.org.
