Housing News

Investment, vacation home purchases spike dramatically

With the growing population, investment and vacation home sales are increasing and the National Association of Realtors forecasts that there will be continued growth in coming years.

Buyer survey results are in

According to the National Association of Realtors’ 2012 Investment and Vacation Home Buyers Survey, investment home sales surged 64.5 percent in 2011 from 2010, while vacation home sales rose 7.0 percent, and owner-occupied purchases fell 15.5 percent. Vacation home sales accounted for 11.0 percent of all transactions in 2011, up only 1.0 percent for the year, while investment sales surged dramatically to 27 percent, up 10.0 percent from 2010.

NAR Chief Economist Dr. 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. 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.”

Investors to absorb foreclosures hitting market

Dr. 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. Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas. Even where alternatives are needed, it’s best to rely on the expertise of local businesses, nonprofit organizations and government,” Dr. Yun said.

Cash buyers in the market

According to the survey, all-cash transactions are becoming the common way for investors to buy investment and vacation homes with roughly half of all investment buyers paying cash in 2011 and 42 percent of vacation home buyers paying cash. Dr. Yun points to tight credit conditions for the decline in owner-occupant purchases.

Half of all investment home purchases in 2011 were distressed homes, as were 39 percent of vacation homes. The median investment home price in 2011 was $100,000, up 6.4 percent over the year, while the median vacation home price was $121,300, down 19.1 percent.

“Clearly we’re looking at investors with financial resources who see real estate as a good investment and who aren’t hesitant to use cash,” Dr. Yun said.

Dr. Yun also pointed out that for investment and vacation home buyers that used mortgage financing, the median downpayment was 27 percent in 2011.

Buyer demographics

The typical investment home buyer in 2011 is 50 years old, earns $86,100, and usually invested within 25 miles of their primary residence.

The typical vacation home buyer is also 50 years old, has a median income of $88,600 and purchased a property within 305 miles of their primary home. Although 37 percent purchased vacation homes over 500 miles away, 35 percent stayed within 100 miles.

Flipping is down

The 2012 study reveals that buyers plan to own their recreational property for a median of 10 years.

“The share of investment buyers who flipped property remained low in 2011, and many of those homes likely were renovated before reselling,” Yun said. Five percent of homes purchased by investment buyers last year have already been resold, up from 2 percent in 2010. The typical investment buyer plans to hold the property for a median of 5 years, down from 10 years for buyers in 2010.

Most (82 percent) of vacation home buyers said the primary reason for buying was to use the property themselves for vacations, and while 32 percent plan to use the property as a primary residence in the future, only 22 percent plan to rent their property to others.

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

Fully 16 percent of vacation buyers and 14 percent of investment buyers purchased the property for a family member, friend or relative to use, often for a son or daughter to use while attending school.

Hot spots for vacation home and investment purchases

The South is very popular for investors and vacation purchases, accounting for nearly half of all 2011 purchases.

Fully 42 percent of vacation homes purchased 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.

Additionally, 42 percent of investment properties were in in the South, 23 percent in the West, 17 percent in the Midwest and 15 percent in the Northeast.

Positive outlook for second home purchases

Eight out of 10 second home buyers said it was a good time to buy and nearly half of investment buyers said they were likely to purchase another property within two years, as did one-third of vacation-home buyers.

The study anticipates that with the growth patterns of the American population, second home sales will increase. Dr. Yun noted, “Given that the number of people who are in their 40s is somewhat larger than the 50-somethings, the long-term demographic demand for purchasing vacation homes is favorable because these younger households are likely to enter the market as their desire for these kinds of properties grows, and individual circumstances allow.”

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