Sales of 2nd Homes at Highest Level Since 2005

Last year’s sales of investment and vacation homes surged to their highest level since 2005, according to an annual survey of such transactions.

The 2012 Investment and Vacation Home Buyers Survey by the National Association of Realtors® shows investment-home sales jumped 64.5 percent in 2011 compared to 2010, rising from 749,000 to 1.23 million. Vacation-home sales rose 7.0 percent to 502,000 in 2011 from 469,000 in 2010. Owner-occupied purchases fell 15.5 percent to 2.78 million.

Vacation-home sales accounted for 11 percent of all transactions last year, up from 10 percent in 2010, while the portion of investment sales jumped to 27 percent in 2011 from 17 percent in 2010.

(Editor’s note: NAR defines vacation homes as recreational property purchased primarily for the buyer’s (or their family’s) personal use, while investment homes are defined as residential property purchased primarily to rent to others, or to hold for other financial or investment purposes.

NAR Chief Economist Lawrence Yun said investors with cash took advantage of market conditions in 2011. “During the past year investors have been swooping into the market to take advantage of bargain home prices,” he said. “Rising rental income easily beat cash sitting in banks as an added inducement. In addition, 41 percent of investment buyers purchased more than one property.”

Half of investment buyers said they purchased primarily to generate rental income, and 34 percent wanted to diversify their investments or saw a good investment opportunity.

Yun said the shift in investment buyer patterns in 2011 shows the market, for the large part, is able to absorb foreclosures hitting the market. “Small-time investors are helping the market heal since REO (bank real estate owned) inventory is not lingering for an extended period.”

Other key findings of the survey, which was conducted in March, include;

49 percent of investment buyers paid cash in 2011, as did 42 percent of vacation-home buyers.
Half of all investment home purchases in 2011 were distressed homes, as were 39 percent of vacation homes.
Of buyers who financed their purchase with a mortgage, large downpayments were typical. The median downpayment for both investment- and vacation-home buyers in 2011 was 27 percent.
The median investment-home price was $100,000 in 2011, up 6.4 percent from $94,000 in 2010.
The median vacation-home price was $121,300, down 19.1 percent from $150,000 in 2010.
Investment-home buyers in 2011 had a median age of 50, earned $86,100 and bought a home that was relatively close to their primary residence – a median distance of 25 miles, although 30 percent were more than 100 miles away.
Eighty-two percent of vacation-home buyers said the primary reason for buying was to use the property themselves for vacations, or as a family retreat. Thirty percent plan to use the property as a primary residence in the future, and only 22 percent plan to rent to others.
Sixteen percent of vacation buyers and 14 percent of investment buyers purchased the property for a family member, friend or relative to use. In many cases the home is intended for a son or daughter to use while attending school.
Forty-two percent of vacation homes purchased last year were in the South, 30 percent in the West, 15 percent in the Northeast and 12 percent in the Midwest; 1 percent were located outside of the U.S.
Forty-four percent of investment properties were in the South, 23 percent in the West, 17 percent in the Midwest and 15 percent in the Northeast.
Eight out of 10 second-home buyers said it was a good time to buy.
Nearly half of investment buyers said they were likely to purchase another property within two years, as did one-third of vacation-home buyers.