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President's corner

National Mortgage Professional
Aug 25, 2005

News from NARmortgagepress.comreal estate market, industry updates, housing indicator 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.
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