US second home market surges as people snap up bargain prices
There has been a huge surge in the sale of second homes in the United States driven by bargain prices, it is suggested.
Sales activity in this sector of the residential real estate market has jumped to its highest level said 2005, according to the National Association of Realtors.
‘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,’ said NAR chief economist Lawrence Yun.
He added that some 41% of investment buyers purchased more than one property and the shift in investment buyer patterns in 2011 shows the market, for the large part, is able to absorb foreclosures hitting the market.
Overall 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.
Its latest survey found that investment home sales surged 64.5% to 1.23 million last year from 749,000 in 2010 while holiday home sales increased by 7% to 502,000 in 2011 from 469,000 in 2010. At the same time owner occupied purchases fell 15.5% to 2.78 million.
Vacation home sales accounted for 11% of all transactions last year, up from 10% in 2010, while the portion of investment sales jumped to 27% in 2011 from 17% in 2010.
‘Small time investors are helping the market heal since REO (bank real estate owned) inventory is not lingering for an extended period,’ explained Yun.
The research also shows that all cash purchases have become fairly common in the investment and vacation home market during recent years. Some 49% of investment buyers paid cash in 2011, as did 42% of vacation home buyers. Half of all investment home purchases in 2011 were distressed homes, as were 39% of vacation homes.
‘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,’ Yun said.
Of buyers who financed their purchase with a mortgage, large down payments were typical. The median down payment for both investment and vacation home buyers in 2011 was 27%.
The median investment home price was $100,000 in 2011, up 6.45 from $94,000 in 2010, while the median vacation home price was $121,300, down 19.1% from $150,000 in 2010.
Buyers plan to own their recreational property for a median of 10 years and lifestyle factors have consistently been the primary motivation for vacation home buyers, while the desire for rental income drives investment purchases.
Vacation homes purchased last year were more likely to be in suburban or rural areas while investment homes were concentrated in suburban locations.
Some 82% of vacation home buyers said the primary reason for buying was to use the property themselves for vacations, or as a family retreat, 30% plan to use the property as a primary residence in the future, and only 22% plan to rent to others.
Half of investment buyers said they purchased primarily to generate rental income, and 34% wanted to diversify their investments or saw a good investment opportunity.
Some 16% of vacation buyers and 14% 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.
In terms of location the research found that 42% of vacation homes purchased last year were in the South, 30% in the West, 15% in the Northeast and 12% in the Midwest. Just 1% were located outside of the US.
It also found that 44% of investment properties were in the South, 23% in the West, 17% in the Midwest and 15% in the Northeast.