Vacation Home Sales Pick up Slack as Investments Wane

Vacation home purchases recovered strongly in 2013, helping to offset some of the inevitable flagging interest in investment purchases the National Association of Realtors® (NAR) said today.  NAR's 2014 Investment and Vacation Home Buyers Survey shows an increase in vacation-home sales during the year of 29.7 percent.  There were 553,000 such sales in 2012, an estimated 717,000 in 2013.

At the same time investment purchases retreated from the elevated levels of 2011 and 2012, falling 8.5 percent to 1.10 million in 2013 from 1.21 million in 2012.  There were 1.23 million such sales in 2011.  NAR's investment sales figures do not include institutional sales.  Sales of owner-occupied homes rose 13.1 percent to 3.70 million last year from 3.27 million in 2012.

NAR Chief Economist Lawrence Yun said the pullback in investment activity is understandable. "Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discounted foreclosures over the course of the year," he said.

"In 2011 and 2012, investment property was a no-brainer because home prices had sharply over corrected during the downturn in many areas, creating great bargains that could be quickly turned into profitable rentals. With a return to more normal market conditions, investors now have to evaluate their purchases more carefully and do their homework."

Yun said the improvement in the vacation home market was also anticipated.  "Growth in the equity markets has greatly benefited high net-worth households, thereby providing the wherewithal and confidence to purchase recreational property.  However, vacation-home sales are still about one-third below the peak activity seen in 2006."

About 13 percent of all 2013 sales were of vacation homes, up from an 11 percent share in each of the previous two years.  This was the highest that recreational property share has been since 2006.  The portion of sales accounted for by investment activity fell to 20 percent in 2013 from 24 percent the previous year.

The median investment-home price was $130,000 in 2013, up 13.0 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012.   The median owner-occupied home price was $189,000, a 2013 increase of 11.2 percent.  All cash purchases were common for both investment and vacation home transactions as were large down payments.  Forty-six percent of investment purchases were all cash while the median downpayment for buyers obtaining a mortgage was 26 percent.  The median downpayment for mortgaged vacation homes was 30 percent although 38 percent were all cash sales.  Distressed homes continued to play a significant role in the non-owner occupied market, accounting for 47 percent of investment sales and 42 percent of vacation homes. 

While NAR said lifestyle factors were the primary motivation for vacation home buyers and rental income was driving investment purchases, the data also shows some blurring of the lines.  Five percent of vacation-home buyers reported they had already resold their property and while 9 percent plan to do so within a year. Buyers plan to own their recreational property for a median of 6 years, down from 10 years in 2012.

Yun said those figures "reflect the 28 percent of recreational property buyers who said they purchased to diversify investments or saw a good investment opportunity."   Eighty-seven percent of recreational buyers did state an intent to use their property for vacations or a family retreat and 31 percent say they will eventually use it as a primary residence; 23 percent intend to rent the property to others.

Forty-one percent of vacation homes purchased last year were in the South, 28 percent in the West, 18 percent in the Northeast and 14 percent in the Midwest.  Sales of investment properties followed a similar pattern with 38 percent purchased in the South, 25 percent in the West, 18 percent in the Northeast and 19 percent in the Midwest.

Fifty percent of investment buyers said they purchased for rental income, 34 percent wanted to diversify their investments or saw a good investment opportunity, and 22 percent bought for a family member, friend or relative to use.  Seven percent of investment homes purchased in 2013 had already been resold by the time of the survey and another 10 percent were planned for sale within a year. Overall, investment buyers plan to hold the property for a median of 5 years, down from 8 years in 2012.

The typical vacation-home buyer was 43 years old, had a median household income of $85,600 and purchased a property that was a median distance of 180 miles from his or her primary residence; 46 percent of vacation homes were within 100 miles and 34 percent were more than 500 miles. Investment-home buyers in 2013 had a median age of 42, earned $111,400 and bought a home that was relatively close to their primary residence - a median distance of 20 miles.

NAR conducted its 2014 Investment and Vacation Home Buyers Survey in March 2014 among buyers of about 2,203 homes purchased during 2013 from a representative panel of 2,008 U.S. households. The survey controlled for age and income, based on information from the larger 2013 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.  NAR's analysis of U.S. Census Bureau data shows there are 8.0 million vacation homes and 43.7 million investment units in the U.S., compared with 74.7 million owner-occupied homes.