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Market Older, Larger Than Thought
The typical owner of multiple residences is significantly older than previously believed, new research by the National Association of Realtors has revealed.
The survey, released earlier this month at NAR's annual convention in New Orleans, also discovered the second home market is far larger than originally thought, now accounting for roughly 6 percent of all homes sold annually.
And in what NAR Chief Economist David Lereah called "another real surprise," the study also found that most people buy second homes for their own use rather than as rentals.
The survey of 3,100 second home owners is the first major stand-alone study of the second-home market, which includes vacation homes as well as investment properties. Because there "is so little data" on the sector, Lereah expects it to become the benchmark by which all future trends will be measured.
Earlier data extrapolated from NAR's semi-annual profile of all buyers and sellers had pegged the median age of the typical second home buyer at a relatively young 46. But the NAR study found it to be 61, a difference of 15 years.
The study also put the number of sales last year at 359,000 units, up sharply from 264,000 just two years earlier.
There is still some discrepancy over the total size of the second home market, however.
The category often cited as the total number of vacation homes is the Census Bureau report on residential vacancies. Currently, Census puts the number of vacant seasonal houses at 3.6 million, up from 3.1 million in 1990 and 1.7 million in 1980.
But Lereah believes that is off the mark because many recreational properties are not vacant. "Based on our survey, a 'back-of-the-envelope' estimate indicates there may be as many as 7 million vacation homes in the United States," the NAR economist said.
Other Census data shows there are 9.2 million houses held by owners in addition to their primary residence. But it is not known how many are for vacation or recreational use.
Part of the increase in sales over the previous two years can be attributed to off-the-mark estimates in 1999. But Dennis Hanlon, a broker in Park City, Utah, and chairman of NAR's Resort Forum, said more people are cashing in stocks or taking equity out of their homes to take advantage of the lowest interest rates in 40 years.
"Clearly, recent buyers were more motivated by a desire to diversify portfolio assets," Hanlon said.
The study found equity in stocks and bonds were used as a source of funds by one in seven buyers. Prior to 2000, only 7 percent dipped into their other assets to buy another residence. "I don't think that's a coincidence," Lereach remarked.
Moreover, 34 percent of those who bought in the last two years said they were likely to purchase an additional house because of the stock market debacle.
However, less than one in four said they bought another house as purely an investment play. The vast majority bought their homes as places to vacation or as eventual retirement homes.
And the two purposes rarely mix, according to Mr. Lereah, who said, "Most vacation homes owners never rent, and most investors never us their places." Vacation-home owners tend to hold their properties for their own exclusive use. About 84 percent say they never rent, and only a small portion of the rest rent for longer than six months a year.
On the other hand, well over half of investment owners never use their homes and rent to others for at least a half-a-year.
Either way, though, owners of multiple residences are seeing their second homes appreciate at a much faster pace that their primary homes. According to the study, the median price of a second property rose nearly 27 percent between 1999 and 2001 vs. 7-8 percent in the primary home market.
No wonder 85 percent of the vacation owners and 87 percent of the investment owners said they believe they made wise investments.
Indeed, said Clark Thompson of escapehomes.com, a website which lists vacation and resort homes for sale and rent, "buying a second home now is like buying California real estate in the '70s."
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